If you’re under age 65 and have reached preservation age, with at least $15,000 to invest, you can transition to retirement to boost your super for a comfortable retirement.
The transition to retirement strategy allows you to continue working full time while increasing your before-tax super contributions up to $25,000 and supplementing your income with a pre-retirement pension.
By changing how you receive your income, you can generally reduce your marginal tax rate to 15%. Typically, this option is of greatest benefit to people who are age 60 or over on a high marginal tax rate.
Doing the maths - Contribute more to super and maintain the same income!
Fred is 60 years old and earns $100,000 pa. He pays $26,632 in income tax for 2017-18, including Medicare Levy, leaving him with $73,368.
Fred can contribute up to $15,500 pa before-tax to super, in addition to the compulsory 9.5% contribution his employer makes for him. He decides to contribute the full amount, reducing his taxable income to $84,500. This means he only pays $20,699.50 income tax. At the same time, Fred takes out a pre-retirement pension and draws $9,567 from his pension to maintain his lifestyle. As Fred is over age 60, his pension payments are tax free*.
This leaves Fred with $3,608.00 pa extra in his super after receiving his pension payments, without having to compromise his lifestyle.
*These amounts include 15% contributions tax on salary sacrifice.