Transition to Retirement Case Studies

The following hypothetical examples are general descriptions of the most common ways in which people can benefit from Transition to Retirement. It should be noted that some of the applications of the measures can be quite complex and that it is therefore not possible to cover all the possible permutations in this article.

a) Flexible working option
Sarah is 59 and works 30 hours per week, earning about $60,000 per annum (pa). She is contemplating retirement but does not feel ready to stop working completely. She decides to reduce her working hours to only 10 per week. This means that her annual salary-based income will drop to $20,000. She does some number crunching and decides that she will need another $25,000 pa to maintain her current lifestyle. She then proceeds to use $350,000 from her superannuation fund to create a non-commutable income stream (in the form of an allocated pension) to provide the $25,000 pa that she needs to bridge the gap between her earnings and her income requirements.

b) Extra income:
Peter is 61 and is committed to working full time until he reaches 65. He decides, however, to make use of the Transition to Retirement arrangements, using his super balance of $400,000 to fund an income stream of $35,000 per year. Since he is working full time, this money is not needed for day to day expenses and can therefore be used for a special project, namely the purchase of a retirement home. Previously Peter would have had to sell his current home first in order to raise the necessary funds but now the extra income can be used to service a mortgage on the retirement property. When he retires, the loan can be paid off by using the capital locked up in his existing home.

c) Maximising retirement income
Philip is 55 and works full time, and he intends to keep going until he reaches 65. He earns $120,000 per year and his superannuation fund contains $500,000. He decides to draw the maximum annual pension and then to 'salary sacrifice? $62,800 of his salary back into the super. Philip's pension income comes with a 15% tax offset, which means that he is paying less tax on this part of his income. The net effect is that he is sacrificing more ($62,800) into his super than what he is taking out as a pension ($50,000). This means that he can use the last 10 years of his working life to significantly boost his eventual retirement income. It should be clear from the above examples that the Transition to Retirement measures can benefit people in a wide variety of ways. There is often, however, a wide gulf between general principles and individual circumstances. You should therefore find a solution that will work best for you.