Case study transition to retirement boosting super
working full-time and boosts his super
is 55 and earns $100,000 a year. He intends to keep working
full-time for another few years. Andy has $220,000 in super.
Andy's financial adviser explored whether a transition to
retirement (TTR) strategy would work for him.
How will the strategy work?
- Andy transfers most of his super to an account-based pension.
This saves money as he won't pay tax on investment earnings on
the pension account.
- He salary sacrifices a large amount into super. This reduces
his income tax, but reduces his take-home pay.
- Then, he withdraws up to 10% of his pension balance each year,
which boosts his overall income back to his current level.
Andy's take-home income stays the same. He saves more
than $2,300 in tax overall in the first year. This means
Andy will have more money in super when he finally stops work.
Here are his adviser's calculations for the first year of the
|Minus salary sacrifice1
|TTR pension income2
|Minus tax & Medicare
|Take home pay
||(Take home pay stays the same)
||TTR strategy ($)
|Super contributions: employer contributions
|Super contributions: salary sacrifice
|Minus contributions tax5
|Minus TTR pension drawdown
|Minus tax on earnings6
|Net gain in super
||($2,326 more goes into
||TTR strategy ($)
|Total tax paid7
||(Tax savings are now in
Andy is happy with his tax savings. His adviser has told him he
will save even more tax when he turns 60.
How Andy's figures were calculated
Andy leaves $5,000 in super to keep his account open to receive
contributions. Andy's employer continues to make super
contributions based on gross income, which are 9.5% of his salary.
(Your employer does not have to pay super on amounts you salary
sacrifice; however, most employers will continue to pay super on
your gross earnings.)
Andy's strategy in the table above uses these assumptions:
- As Andy is over age 50, his maximum concessional super
contribution is $35,000 for 2015/16. However in this scenario
Andy's total concessional (employer + salary sacrifice)
contributions are $30,000.
- The amount of TTR pension that can be withdrawn each year by
Andy must be between the legislated minimum 4% and maximum 10% of
the account balance. Andy is drawing the amount of pension
necessary to replace the income he has lost through salary
sacrifice, so that his take home pay stays the same.
- Under the TTR strategy, Andy's tax is reduced by a pension
rebate equivalent to 15% of his pension income.
- Investment returns are based on earnings of 7% and have only
been calculated on Andy's current super and pension account
They do take into account returns on the current year's super
contributions. In practice, investment returns would start to
accumulate on contributions when they are received by the
- Concessional super contributions (employer and salary sacrifice
contributions) are taxed at a rate of 15% when they ae received by
the super fund.
- Investment returns are taxed at a maximum of 15%, however, the
overall tax rate is often lower due to offsets like dividend
imputation credits that reduce tax payable. For this case study we
have adopted an average tax rate of 9% on super fund earnings.
Investment returns on a super pension account are tax free.
- This is the total of income tax, super contributions tax and
tax on investment earnings.
Last updated: 13 Oct 2016