Case study transition to retirement part-time work
Susan reduces her work hours to transition
Susan has just turned 60 and has a super balance of $160,000.
She earns $50,000 a year before 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 $30,000 a year before tax. Susan can afford to
reduce her take-home pay a little bit but can use her super to
soften the drop in pay.
How will the TTR strategy work for
Susan's financial adviser shows how she can have a
take-home pay of a little over $36,000 using her super:
- Susan transfers $155,000 of her super to an account-based
- She draws a pension of $9,000 each year, tax-free.
calculations while reducing work hours
Here are the adviser's calculations for Susan's first year.
|TTR pension income
|Minus tax & Medicare Levy
|Take home pay
||(Take home pay drops a bit)
|Super contributions: employer contributions*
|Minus contributions tax
|Minus TTR pension drawdown
|Minus tax on earnings**
|Net gain in super
||(Super is still growing)
|Total tax paid
|COMBINED TAX SAVINGS
||(Large tax saving)
* Investment returns based on earnings of 7%
** Investment returns are taxed up to 15%, however offsets like
didvidend imputation credits often reduce the tax paid on a
diversified investment portfoliuo. In this case study an average
tax rate of 9% on super fund earnings has been used.
Benefits of the TTR
strategy for Susan
- Susan's take-home pay only drops by around $5,000 a year
- Her super continues to grow as she is still working
- She saves around $6,400 in tax each year
If Susan had retired, her super balance would be dropping by
large amounts each year.
Changes to tax on transition to retirement
From 1 July 2017, investment returns on super transition to
retirement pensions are taxed at up to 15% just as they are in the
accumulation phase. See the Australian Tax Office (ATO) website for
more information on the super changes and how they will affect
Last updated: 05 Jan 2018