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As you approach retirement, you may be able to access some of your super as part of a transition to retirement (known as TTR) strategy.

This enables you to receive regular payments from your super (which are tax-free If you’re over age 60), providing some options to either give your super a boost with higher contributions or gradually wind back your working hours without reducing your take home pay.

Save more or work less? 

The choice is yours – a TTR strategy can help put more into your super providing more savings in retirement, slow down your working hours as you start to transition into your retirement lifestyle or, reduce debt and get your home in order with a lower or even no mortgage.

Here’s how it works: 

“Save more” – growth TTR strategy

This is all about creating wealth without impacting your cash flow. 

  • By salary-sacrificing some of your pay into your super you may be able to reduce your tax bill as your salary–sacrifice contributions are taxed at just 15% (subject to income limits – refer to “Things to consider” below).
  • To supplement any drop in your take home pay from these additional salary-sacrifice contributions, you can top up your income by drawing regular payments from your Mercy Super Income Account so your overall net income stays the same. If you’re age 60 or over these payments are tax-free so you don’t need to withdraw as much from your super to offset the impact of the additional contributions going in.

Example : Jennifer – age 60 gross salary $80,000 p.a. 

Jennifer wants to put in a “save more” growth TTR strategy to give her super a boost without sacrificing her take-home pay of around $2,380 per fortnight.

She asks her employer to salary-sacrifice $670 of her salary per fortnight to her super, which reduces her take-home pay to around $1,940 per fortnight.

To make up for the difference in her take-home pay, Jennifer draws down $440 per fortnight from her Income Account bringing her total fortnightly income back to $2,380.

Even after 15% tax is applied to her salary-sacrifice contributions, Jennifer’s super is boosted by an extra $3,370 p.a. without any change to her take-home pay.

“Work less” – wind down TTR strategy

This is all about supplementing your reduced income because of reduced working hours. 

  • If you reduce your hours of work, your take home pay will also reduce.
  • To offset the loss of net take home pay, you draw an income from your Mercy Super Income Account. If you’re over age 60 these payments are tax-free so you don’t need to withdraw as much from your super to offset the pre-tax salary lost from your reduced working hours.

Retirement icon

Example: Peter – age 60 gross salary $80,000 p.a. 

As he approaches retirement, Peter wants to spend more time with his passion for brewing boutique beers and decides to drop back to four days a week at work.

This drops his take-home pay from $2,380 to around $1,977 per fortnight.

To make up for the difference in his take-home pay, Peter draws down $403 per fortnight from his Income Account bringing his fortnightly income back to $2,380.

Peter can enjoy the extra time pursuing his passion for the perfect brew blend without needing to sacrifice any existing living standards or expenses.

“Reduce debt” – reduced or no mortgage TTR strategy

This is all about working towards paying off your debt prior to retirement.

  • You could draw an income from your Mercy Super Income Account to increase the payments on your mortgage.
  • If you’re over age 60 these withdrawals from your Income Account are tax-free and if directly offset against your mortgage, can reduce your interest expense and get you closer to being debt free in retirement.
  • You might instead decide to fund some of those long overdue renovations to make your home a bit more comfortable to enjoy in your retirement or possibly increase the value of your home.

Example : Susan – age 60, Super Account balance $380,000.

As she approaches retirement, Susan wants to make sure her mortgage is paid off and is set up ready for her to enjoy in her planned retirement in another five years. She is already contributing more to her super through salary sacrifice.

Susan draws $3,000 each month from her Income Account which goes straight onto her mortgage. After using a portion of these additional repayments to set up her dream back deck, Susan estimates that her mortgage will be paid off before her planned retirement.

Eligibility

As a Mercy Super member, you have access to either a Pre-Retirement Income Account or a Post-Retirement Income Account.

To open a Pre-Retirement Income Account you must have reached your preservation age (see table below) and still be in the workforce.

To open a Post-Retirement Income Account you must:

  • have reached your preservation age (see table below) and be permanently retired from the workforce, or
  • have reached age 60 and left your employment (though you are free to start work with another employer), or
  • have reached age 65, or
  • have been assessed as Totally and Permanently Disabled.

Temporary residents are not eligible to open a Mercy Super Income Account.

Preservation age

Your preservation age is determined by your date of birth:

Date of birth Preservation age
Before 1 July 1960 55
From 1 July 1960 to 30 June 1961 56
From 1 July 1961 to 30 June 1962 57
From 1 July 1962 to 30 June 1963 58
From 1 July 1963 to 30 June 1964 59
After 30 June 1964 60

How to setup your TTR strategy

To activate your Mercy Super Income Account: 

  1. Transfer a minimum of $50,000 from your Super Account to your Income Account.
    You will need to keep at least $8,000 in your Super Account to keep it open to receive your employer contributions and additional salary sacrifice contributions. You should also make sure there is enough in your Super Account to cover any insurance premiums. 
  2. Arrange any additional salary sacrifice contributions with your employer’s payroll.
    They can arrange to have your additional salary sacrifice contributions paid to your Super Account. 
  3. Set up regular payments from your Income Account.
    You’ll need to choose how much and how often you want payments to be made from your Income Account to top up your take home pay. 

The tricky part is getting these amounts right – as it involves tax, it can get a bit complicated but that’s where we can help. Our in-house financial advisers can help set up a TTR strategy that works for your based on your needs and personal circumstances.

How much can you draw from your Income Account?

The amount you draw from your Income Account is subject to minimum (and maximum for Pre-Retirement Income Accounts) levels set by the Government.

  • For Pre-Retirement Income Accounts the annual payment amount must be a minimum of 2% for the 2021/22 and 2022/23 financial years (if you’re under age 65) and a maximum of 10% of the total account balance – see the table below.
  • For Post-Retirement Income Accounts the annual minimum payment is based on your age and your account balance at 1 July each year (see table below).

If you start an Income Account part way through a financial year, your initial minimum payment amount will be proportioned based on the number of days to the end of that financial year. If you commence your Income Account between 1 June and 30 June, you can defer your first payment to the next financial year.

We will recalculate your minimum payment at the start of each financial year.

Minimum payments

The minimum annual payment amount for both types of Income Account is:

Age

% of account balance
2021/22 and 2022/23 2023/24 onwards
Under 65 2% 4%
65 – 74 2.5% 5%
75 – 79 3% 6%
80 – 84 3.5% 7%
85 – 89 4.5% 9%
90 – 94 5.5% 11%
95 or more 7% 14%

Maximum payments (Pre-Retirement Income Accounts only)

A maximum of 10% of your account balance applies to Pre-Retirement Income Accounts. There is no maximum payment amount for Post-Retirement Income Accounts.

Things to consider

  • You can implement a TTR strategy if you’ve reached your preservation age. If you’re age 60 or over, the payments from your Income Account are tax-free. If you’re under age 60, the taxable portion of your payments is taxed at your marginal tax rate, subject to a 15% offset (refer to the Income Account guide for more details).
  • You’ll need to transfer at least $50,000 from your Super Account to activate your Income Account.
  • The Government sets minimum and maximum amounts you can draw down from your Income Account.
  • There are limits to the amounts that can be tax effectively salary–sacrificed back to your Super Account, so you should check out your contribution caps before you set up your TTR strategy.
  • If you’re earning less than $37,001 p.a. or more than $250,000 p.a. a “Save more” growth TTR strategy may not be effective for you. We recommend you seek financial advice before proceeding with a TTR strategy.
  • Remember, these strategies are accessing and using your super so make sure you consider the long-term impact on your retirement savings and how long your super will last.

For more information on utilising your Mercy Super Income Account –  

Read our Income account guide

 

Assumptions for TTR examples: 

  • Based on 2020/21 individual income tax rates updated 13 October 2020 for Australian residents including Low Income Tax Offset. 
  • Income account withdrawals are made at the end of the year. 
  • Source of figures: Mercy Super Financial Services Pty Ltd. 

 Issued by Mercy Super Pty Ltd ABN 98 056 047 324 AFSL 418976 Trustee of Mercy Super ABN 11 789 425 178. The information provided is of a general nature only and does not take into account your individual financial situation, objectives or needs. Accordingly, before acting on the information, it is important that you consider the appropriate Product Disclosure Statement and Target Market Determination, available from mercysuper.com.au or by contacting us, having regard to your own particular situation. 

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