Case study transition to retirement part-time work

Susan reduces her work hours to transition to retirement

""Susan has just turned 60 and has a super balance of $160,000. She earns $48,000 a year after tax.

Susan decides to only work 3 days a week so that she can gradually ease into retirement. This means her income from work will drop to around $32,000 a year after tax. Susan can afford to reduce her take-home pay a little bit but can use her super to soften the drop.

How will the strategy work?

Susan's adviser shows how she can have a take-home pay of around $41,000 using her super.

  1. Susan transfers $155,000 of her super to an account-based pension.
  2. She draws a pension of $9,000 each year, tax-free.

Benefits

  • Susan's take-home pay only drops by around $7,000 a year
  • Her super continues to grow as she is still working part-time
  • She saves around $9,400 in tax each year

If Susan had retired, her super balance would be dropping by large amounts each year.

Calculations

Here are the adviser's calculations for the first year.

  Current
($)
TTR strategy
($)
Gross income 60,000 36,000  
TTR pension income 0 9,000  
Taxable income 60,000 36,000  
Minus tax & Medicare Levy -12,247 -4,102  
Take home pay 47,753 40,898 (Take home pay drops a bit)
Super contributions: employer contributions* 5,700 3,420  
Investment returns** 11,200 11,200  
Minus contributions tax -855 -513  
Minus TTR pension drawdown 0 -9,000  
Minus tax on earnings**  -1,008  -31  
Net gain in super 15,037 5,076 (Super is still growing)
Total tax paid 14,110 4,646  
COMBINED TAX SAVINGS   9,464 (Large tax saving)

* The diagram shows the same employer contributions for Susan's current situation and for her TTR strategy.

** The diagram shows investment returns based on earnings of 7% and an average tax rate of 9% on super fund earnings.

Susan is enjoying her extra days off, comfortable in the knowledge that her super will continue to grow until she is ready to retire.

 

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Last updated: 24 Aug 2015