Transitioning

I caught up with a bloke after work today whom I used to work with in a previous organisation; he's older than me and in line with my ethos of spending time with people older than I am I catch up now and then and always find value; he's a champ. Today over coffee we were talking about transitioning to retirement as that's exactly what he's doing.

The term, transition to retirement or (TTR), is a term that covers a superannuation/pension concept that helps those close to retirement (and beyond their preservation age) back off their working hours and augment their income to maintain acceptable levels.

The preservation age in Australia is between 55 and 60 years of age which means one cannot access one's super prior to the age specific to the individual - more on that later. A TTR account is a form of pension account that sits alongside one's superannuation and holds a sum of money (drawn from superannuation) and the income from it is called a TRIS (account-based pension.)

There's some cool taxation benefits and because they're still working their employer still contributes to their superannuation fund plus they are still earning an income and have the benefit of supplementing that from their TRIS pension-account should they wish. Cool right?

So, in talking to my mate he gave me a little scenario to demonstrate. Keep in mind this was an example only and certainly isn't me telling people what they should do or me telling what he does - Just a little disclaimer for y'all.

Imagine a person has $400,000 in superannuation at the age of 60 and is still working. They roll $300,000 into a pension fund and take 10% and place it into a TRIS account, so $30,000. The next day, that person takes that $30,000 from that bank account and puts it back into their superannuation fund incurring tax of 15% on the way in ($4,500). Come tax time the person claims a 34.5% deduction on the entire $30,000 and back comes $10,450. Drop the $4,500 paid out in tax back and that leaves about $5,800 as a gain to bank and augment income or add back to one's superannuation fund.

Sound complicated? Yeah it sort of is. It's shuffling money around to take advantage of superannuation and tax laws really and while it's a bit of messing around, adding that extra $5,800 into one's superannuation over a few years will help build it ready for retirement. The government don't mind it though as it keeps older people in the workforce and helps them become self-funded rather than relying on government pensions.

I'm not at my preservation age yet. (Born prior to 1 July 1960 is 55 years old preservation age and after 1 July 1960 is higher depending on year of birth as a pro-rata. Mine is 60 years old which, until then, means I'm not able to access my superannuation. That means I'll not be able to take advantage of the TTR concept yet and by the time I'm 60 years old I'm planning not to be working anymore so I'll not be able to take advantage of it then either - I'll be self-funded. But, I think it's a cool concept and a really great demonstration of how planning ahead financially can really pay dividends later in life.

There's a whole set of rules around a TRIS layout by the Australian Tax Office and those must be followed and there's implications for not doing so of course. but, a person doing a little research and working out what's possible can gain through this, and other, processes which can make retirement a little more enjoyable and liquid.

I've done posts like this before, talking about being self-funded in retirement and planning now for retirement which is important because moving forward there'll be no one out there to help those that are not. These posts are not popular and I think that's because people are so fucken scared of what's going to happen to them - due to being ill-prepared - that they would rather stick their head in the sand and ignore the reality. Well, reality is going to bite someday and when it does a person better be ready - Just my opinion.

So, I spend time looking at my situation, seeing what's possible and how to improve it into the future and working that way. To do otherwise is fucken nuts!