A transition-to-retirement (TTR) strategy is widely lauded as a simple, tax-effective way for people that have reached their preservation age (between age 55 and 60) and less than age 65 to gradually ease out of full-time work without reducing their income.
Under the TTR rules, Australians nearing retirement age can access up to 10 per cent of their superannuation annually as a pension while still working full time, part time or casually, and still contributing to super.
By doing so, they can potentially minimise tax by salary sacrificing into super up to the concessional contribution cap and then drawing a favourably taxed (or from age 60 a tax free) pension, to replace that income.
Yet only 17.8 per cent of eligible retail master trust members and 6.9 per cent of eligible not-for-profit super fund members currently draw a TTR pension, according to SuperRatings.
Given the potential benefits, that number should arguably be higher, suggesting many Australians are either unaware of the merits of a TTR strategy or don’t know how to go about it.
Financial planners have a critical role to play in educating consumers about the importance and value of retirement planning and the various strategies and products available.
An adviser can prepare clients for retirement both financially and emotionally, helping them make the transition, and providing ongoing support and reassurance along the journey.
Retirement planning covers budgeting and cashflow management; developing a disciplined savings and investment plan; establishing reliable and stable income streams; and aged-care and estate planning.
Reality Bites
For many people the reality of retirement is much different to the way it’s often depicted. It’s not all sandy white beaches and green golf courses.
It can be an extremely daunting and stressful time because of all the uncertainty. No one can accurately predict how long they’ll live, how investment markets will perform, or if the government will make further changes to the super and pension rules. These unknowns make it hard to work out how much money people will need in retirement.
Record low interest rates, stock market volatility and rising longevity rates are other concerns for retirees.
According to 2015 Intergenerational Report, Australians are living longer and continue to have one of the longest life expectancies in the world. Many will spend upwards of 30 years in retirement.
There’s clearly a massive opportunity for professional financial advisers to help Australians better prepare for retirement by putting a strategic plan in place which maximises the chance of them achieving their goals and objectives.
Despite the relatively low number of workers who have a TTR strategy in place, it’s a compelling way workers over age 55 can start the journey without making too many changes to their life. A TTR strategy can help reduce any stress and anxiety by approaching retirement as a gradual process rather than an event with a set date in the future.
The information is current as at publication and does not constitute financial advice. It does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. ING DIRECT is a division of ING Bank (Australia) Limited ABN 24 000 893 292 AFSL 229823, Australian Credit Licence 229823.
