Over 55? Combine your Retirement with part-time

work and reap the rewards

 

Nearing retirement and want to work part time or make a career change but can't afford to? The transition to retirement rules let you tap into your super to supplement your income.
 
The Government's Transition to Retirement (TTR) policy allows anyone who has reached preservation age (55 for those born before 1 July 1960) to access their super as a non commutable income stream (NCIS) without having to quit the workforce. A non commutable income stream is simply a type of pension that doesn't allow you to access the capital.
 
If a person wants to reduce the number of hours they work, this strategy can be used to generate supplementary income. Likewise, it can be used by someone contemplating a late career change, such as starting a new business, to derive a steady income during the start up phase.
 
The TTR rules have a further application of allowing a person who continues to work full time to boost their super savings. This approach incorporates other strategies such as salary sacrifice and making deductible contributions to super.
 
Salary sacrifice is a workplace agreement whereby the worker forgoes part of his/her gross salary in return for additional employer super payments. Meanwhile, self employed or substantially self employed individuals (or others who don't receive employer superannuation contributions) can claim a tax deduction for personal contributions made to super.
 
While income is directed into boosting accumulation savings, existing super is used to commence a NCIS, ensuring the person receives sufficient income to cover their requirements.
 
What's the benefit? Concessional contributions, such as salary sacrificed amounts, are taxed at a maximum of 15% as opposed to your margin tax rate that depending on your income could be as high as 45% plus Medicare Levy.
 
At the same time, super income streams receive favourable tax treatment. While the capital used to support your pension is held in a tax free environment (I.e. no tax is payable on fund earnings), pension payments receive preferential tax treatment.
 
Under the Government's new simpler super system, pension payments made to people 60 or older are tax free from 1 July 2007. Pension payments to those aged between 55 and 59 are divided into two components - a taxable portion and a tax-free amount. Depending on your circumstances, you may be eligible for a tax deduction (tax free) amount. The taxable portion is subject to your marginal tax rate; a 15% tax offset applies to these monies thereby reducing the tax payable.
 
By implementing a TTR strategy, pre retirees may also become eligible for other tax concessions, such as the Low Income Tax Offset. Income from a super income stream may also attract a 15% tax offset, which makes it more tax effective than salary or business income. As with many tax strategies, the higher your marginal tax rate, the grater the benefit.
 
If you are over 55 or older and plan to keep on working, Morse Financial Services can help you evaluate whether a TTR strategy may be of benefit to you. If you would like to know more about the above strategy or to discuss other financial planning matters please do not hesitate to contact Dustin Bartholomew on 02 6339 9200 or Sam Campbell on 02 6883 2200.
 

Written by Dustin Bartholomew

Dustin Bartholomew is a representative of Morse Financial Services Pty Ltd, AFSL No. 240689, ABN 61 003 485 742. The information contained herein is general in nature and not personal advice. It is based on our understanding of the current taxation and superannuation laws and is current as at 1 July 2009.