What is transition to retirement?
Transition to retirement is a strategy that can help you reduce your working hours while maintaining the same level of income. This is achieved by drawing a pension from superannuation.
What are the benefits of this strategy?
- The opportunity to maintain your current income and boost your retirement savings through salary sacrifice (an income swap strategy), or
- Supplementing your income while reducing your work hours and gradually transitioning into retirement.
A transition to retirement income swap strategy can be an effective way to boost your superannuation savings. But how much your savings grow will depend on the contributions you make into super through salary sacrifice, compared with the amount you withdraw as your pension. If you take out more money than you put back in, your savings will decline in value. This will result in you having less money to fund your retirement when you stop working altogether.
How does a transition to retirement income swap strategy work?
There are two main parts to a transition to retirement strategy:
- Directing a portion of your salary into superannuation, known as salary sacrifice.
- Replacing the income you direct into superannuation with a regular payment from your super savings, otherwise known as a ‘pension’.
General advice warning:
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.
Another great reason to consult your Financial Adviser!