Having a transition to retirement pension over 60 is like ordering cocktails at the pool bar – it’s a highly-likely option.
Coincidentally, it’ll probably have you giving work the flick and sipping on a Mai Tai sooner, too.
Transition to Retirement Pension Over 60
While it is possible to start a transition to retirement income stream prior to age 60, the benefits of doing so are usually much greater once you reach 60.
You see, upon attaining age 60, all TTR Pension income is received completely tax free. This can provide you with a number of strategic retirement planning opportunities and give you greater flexibility as you transition to retirement.
Benefits of Transition to Retirement Pension Over 60
The main benefit of TTR pensions when aged 60 or over is to help you transition to retirement with additional cash flow and/or reduced working hours. But there are also tax benefits, too.
Detailed below are several benefits of commencing a transition to retirement pension from age 60 onwards.
Reduce Working Hours
A transition to retirement pension on or over age 60 can allow you to reduce your working hours to part-time or casual and have your reduced work-related income supplemented by pension payments from your TTR pension. Also, because your TTR pension payments are received tax free over 60, you won’t need to draw down as much pension income to receive the equivalent amount of after-tax employment income.
Reduce Income Tax
A common strategy implemented by people aged 60 or over is to make deductible contributions to superannuation, such as salary sacrificing into super or making personal concessional contributions; then drawing tax-free income from a TTR pension to cover the cash flow shortfall resulting from those contributions. Contributions tax is payable on the deductible contributions, but this is often lower than the personal income tax that would otherwise be payable had the contributions not been made.
Learn more: Transition to Retirement Tax Rate
Pay down debt
You may have some residual home mortgage or other debt remaining as you near retirement. A transition to retirement pension when over 60 can provide you with tax-free income, which can be used to either assist with the associated debt repayments, or give you the ability to make additional repayments so that the debt is paid off sooner.
You may be in a position where you can comfortably cover your lifestyle expenses with your work-related income and are already maximising your concessional (deductible) contributions to super. So, why would you start a TTR pension? Well, a lesser utilised strategy is to commence a TTR pension and immediately recontribute the pension income back into superannuation as a non-concessional contribution, if eligible. The benefit of this is that you can convert any taxable components into tax-free components, which reduces potential death benefits tax and can protect against potential legislative changes in the future that could see people over age 60 being taxed on pension income once again.
Optimising each of these strategies and ensuring they are implemented correctly is vital in ensuring that you receive maximise financial benefit. As everyone’s situation is different, it is also important to consider any unintended consequences that may occur as a result of putting in place a transition to retirement pension, such as loss of tax deductions, loss of insurance within super, administrative burdens and transaction costs, to name a few. To assist with this, we offer personal retirement planning advice through our associated advice team, which you can learn more about here.
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