Whatever your reason for continuing to work past age 60 –- money, mental stimulation, social interaction – the Australian Government has made it possible to stay employed while drawing down some of your super benefits.
The policy, called Transition to Retirement, has significant benefits, such as saving tax and boosting your super, as it allows you to supplement your salary and maintain a comfortable lifestyle.
You can draw down a pension from your super even if you are still working, once you hit preservation age.
Transition to retirement strategy benefits include:
Boost your super savings
Your super balance will keep growing as your employer continues to make contributions into your super account. You can salary sacrifice some of your pre-tax income into your super to further boost your super savings.
Pay less tax
Employer contributions and salary sacrificed contributions are generally taxed at a lower rate when they go into super than your marginal tax rate.
Ease into retirement
If you plan on easing into retirement, then reducing your working hours could be a consideration. If your reduced income is not quite enough to maintain your current lifestyle, a transition to retirement pension can be used to supplement your employment income.
Taxation of income from a Transition to Retirement pension
Every withdrawal (income or lump sum or death benefit) from a pension is split into taxable and tax-free components in the same ratio that applied when the pension commenced. The tax on each component depends on the person’s age as shown in the table below.