They say 60 is the new 40; And while it’s true that today’s over-50s are healthy and active for longer than previous generations, many in this position begin to dream about scaling back their work commitments so they can start ticking off their bucket list in retirement.
You may want the flexibility to travel more, volunteer or take up a hobby. Perhaps you want to look after the grandkids for a day or two a week. It might be you see your 60s as an opportunity to switch careers where you control the hours you work. Services such as Airbnb and Uber are also providing opportunities to earn an income on your own terms.
You may have planned retirement early but now find you are not in a financial position to stop work completely.
Either way, there is a trend towards more people working into their 60s and beyond but not necessarily full time. According to the Australian Bureau of Statistics, 56.9 per cent of 60 to 64-year-olds are in the job market. While the percentage of those working over the age of 65 has jumped to a record high of 12.7 per cent.i
Winding back the hours
One way to achieve a better work/life balance in the lead-up to retirement is to adopt a transition to retirement income stream (TRIS). Once you have reached your preservation age then you can access a percentage of your superannuation as an income stream. This will let you work fewer hours but maintain your standard of living.
The TRIS strategy did lose some of its tax advantages in July last year. However a TRIS strategy still holds its appeal for people who want to use it as it was originally intended. To aid in the transition to retirement.ii
In the past no tax was payable on earnings from TRIS investments; now you will be taxed at 15 per cent. But the favourable tax treatment of withdrawals remains the same. Once you reach 60, any monies withdrawn from your TRIS pension are tax free. For those aged 56 to 60, you will pay tax at your marginal rate but then enjoy a 15 per cent offset.
Boost your super
Another change to the legislation is that you can only contribute a maximum of $25,000 a year as salary sacrifice. As a result, there may not be so much money beyond your employer’s Superannuation Guarantee contributions that you can add to your super to fully take advantage of the scheme.iii Even so, if you salary sacrifice as close to this limit as possible, you will help boost your super for when you do completely retire.
Despite these changes, a transition to retirement strategy can still work for you. Largely because super continues to be one of the most tax-effective investment environments for your retirement savings.
Supplementing part-time income with a TRIS might also give you an opportunity to reduce your mortgage or other debts before you leave the workforce completely.
A win-win solution
Easing your way out of work can be as good for you financially as it is for you psychologically. To go cold turkey from working one day to retirement the next can be difficult without careful planning.
Working out what to do in the run up to retirement needs careful consideration. We can help you decide what will work best for you.
i ‘Older Australians working longer’, Commsec Insights, 23 November 2017.
This website contains general advice which does not consider your particular circumstances. You should seek advice from Wealth & Retirement Solutions who can consider if the general advice is right for you. You should also consider the Product Disclosure Statement before making any investment or product decisions. This website contains past performance information. Past performance is not always a reliable indicator of future performance and you should not rely solely on it to make investment decisions.