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No one in his right mind would want to retire with barely enough cash to live by every day. Financial security for your retirement years is not a gift from heaven. You need to plan and make a commitment to that plan. You need to allocate a certain portion of the money you’re currently making so that you can enjoy them later on when you don’t have to worry about work or getting successful in your career, etc.
Some people continue to work even when they are past 55 years of age. The reason? They need the money. They might have not prepared well for their retirement, that’s why they have to continue working while others are already enjoying life. Other age 55 and up just probably enjoy the mental stimulation and social interaction that a certain job offers. So they take the job even if they have more than enough to draw from their retirement funds.
In Australia, retirees are allowed to draw down some of their super benefits even if they continue working. The policy is called “transition to retirement” and it allows you to maintain a comfortable “retired lifestyle” while having the opportunity to supplement your salary. The same policy also gives you savings on tax and boosts your super funds before you really and actually retire.
A Transition to Retirement (TTR) pension may be used in two ways:
- You keep working full-time to boost your super
- You reduce work hours and soften the income reduction
The preservation age for many people is 55. When you turn 55, you can draw a pension from your super funds and still continue working. If, on the other hand, you are under age 65 and still working, some of your super funds may be transferred to a super pension. You can withdraw from 4% to 10% of your pension account balance each financial year although you are not allowed to withdraw lump sum money.
In order to enjoy the benefits of this TTR pension, there are some things you need to consider:
- Check your Fund Type
The Transition to Retirement pensions may be availed by members of accumulation super funds. If you are a member of defined benefit funds, you are not eligible for the TTR pension.
- Plan Your Retirement Strategy
You need to determine if you want to boost your super or cut back on work. One of these should suit your situation.
- Determine Income Needs
You need to know how much money is needed to support your retirement. Some may opt for reduced work hours and don’t mind the drop in income as the need for income is also reduced as you near your retirement age.
- Check Your Entitlements and Benefits
You and your partner have social security benefits. You might need to consult with a financial adviser just to check if there are implications on your social security entitlements and benefits.
- Check Tax Implications
A lot of people neglect this part and end up getting the surprise of their lives when their tax liability is calculated. A financial adviser will be able to help you determine this.
- Check Your Life Insurance
Your super fund may also be tied up to your life insurance. To make sure that your insurance coverage is not reduced or affected, check with your financial adviser.
A retirement option like the Transition to Retirement offers flexibility to super members in terms of boosting their super funds even as they continue working. A corresponding incentive for staying in the workforce is given who chose to work longer and retire later.
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