Planning for Retirement FAQs

A Transition to retirement Strategy involves the rollover of funds into a transition to retirement pension and salary sacrificing part of your income into superannuation at the same time.

Current preservation rules allow a person who have reached their preservation age, which is currently age 55, to access their superannuation through the transition to retirement pension, without having to meet a full condition of release. This strategy allows preserved benefits to be paid from a superannuation fund via an income stream without the funds being converted to unrestricted non-preserved.

This strategy allows you to earn the same amount of money you are currently earning from your salary. This strategy is beneficial because you are salary sacrificing a part of your salary and receiving an income from your pension income. If you are under the age of 60, the pension income may be tax free, and the taxable component carries a 15% tax rebate. When you reach age 60 all the income from the transition to retirement pension is tax free, so in simple terms you are replacing your taxable salary from tax-free income.

Another benefit is that the investment earnings with the pension account is tax-free, whereas if the funds were still in superannuation the investment earnings are taxed up to 15%.

Please note: Under this strategy you will have two accounts:
A superannuation account which will accept future contributions. i.e. Salary Sacrifice, Superannuation Guarantee and Personal Contributions.
A Transition to retirement Pension account, which pays your income payments to meet your living expenses.

Robert, requires an income of $50,000 pa in retirement at age 65. His life expectancy at age 65 is 19.22 years (2010 -2012 Life Tables) and assuming Robert is a balanced investor, a return of 4.5% pa above inflation rate (assumed at 3.00%) is expected:

The capital required for Robert to be able to afford to retire given these parameters is:

Per annum = $50,000 (income requirements in retirement )

Rate of return = 4.5% (real return after including 3.00% inflation rate)

Number of years = 20 years (rounded up from 19.22 to 20 years)

= $679,664

Robert would need an amount of $679,664 as capital to retire with an annual amount of $50,000 per annum for a period of 20 years.

It is therefore so important to put in place the steps that our clients need to take with us to achieve financial goals:

--> Determine income needs in retirement

--> Calculating capital base required to achieve income needs

--> monitor closely to ensure our clients are not drawing down on capital base in retirement.

--> The actual investment that are chosen

From here the discussions may evolve along the lines of:

--> Whether our clients can afford to retire or not;

--> How to reach desired retirement goals;

--> how to maximise wealth

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