Whether you choose to gradually wind down your working week, or take the plunge into full-time retirement, one of the key challenges faced by many new retirees is the need to fill each day productively. This emphasises the need to be mentally prepared for retirement, as it might not be as easy as you think.
Stopping work – transition to retirement strategy
Rather than exit the workforce overnight, you may have the option of winding down your working week ahead of full-time retirement. A transition to retirement pension (TTR) strategy provides you with the ability to receive an income stream from your super without having to give up work entirely, so you can reduce your working hours while having the same take home pay. 1
Money you withdraw as a TTR pension will be tax-free.
Optimising your TTR strategy can take a bit of calculating and its best to review your strategy each year to make sure it remains on track, you may consider working with a financial adviser to ensure your strategy is achieving the best outcome possible for you.
Stopping work – planning for retirement
Along with the need to keep busy, it’s also important to consider the financial aspect of retirement.
This may mean learning to live on a reduced income or a less regular, less predictable income than in your working days. Get a feel for what lies ahead by drawing up a retirement living budget. Try living on this level of income to see how well you manage, but keep in mind, that many Australians are entitled to additional income support through the age pension, along with enjoying other senior concessions. In retirement it almost becomes more important to understand where your money is coming from and going to, you’re likely to have new sources of income from a superannuation pension and possibly some government age pension, as well as new expenses you may not have thought of as you start to enjoy your retirement years.
Stopping work – retirement as a result of redundancy
Sometimes retirement can be ushered in a little sooner than expected through redundancy.
It’s important to know how your redundancy payment will be calculated. A redundancy payment may contain a number of different components – from a pay out of your unused leave, through to an amount reflecting your years of service with the company. Each component may attract a different rate of tax. It’s also important to note that genuine redundancy and early retirement scheme payments are tax-free up to a limit based on the employee’s years of service.2
Only a payment for a genuine redundancy is eligible for the tax-free limit. Keep in mind that a non-genuine redundancy is not eligible, and occurs when the employee:
- Is dismissed because they’ve reached normal retirement age
- Leaves voluntarily
- Has their contract terminated
- Is dismissed for disciplinary or inefficiency reasons.3
Whether stopping work is planned or unplanned, it’s important to put as many steps in place as possible for the retirement lifestyle you’ve always wanted.
References
1 https://moneysmart.gov.au/retirement-income/transition-to-retirement
2 https://www.ato.gov.au/tax-rates-and-codes/key-superannuation-rates-and-thresholds/employment-termination-payments#ato-Taxfreepartofgenuineredundancyandearlyretirementschemepayments
3 https://www.ato.gov.au/Individuals/Jobs-and-employment-types/Working-as-an-employee/Leaving-your-job/Redundancy-payments/#Nongenuineredundancy