Yes, that’s me shouting!. In this day and age with utility prices rising , people struggling to save and interest rates so low that it is making pensioners weep, we are still finding many people not using the simple, relatively risk-free strategies available to them to reduce their income tax and tax on the earnings of their superannuation savings.
Day in day out I meet new prospective clients, some with SMSFs and some in industry or retail superannuation funds who worry about paying Advice Fees but have ignored the ability to save ten of thousands of dollars in tax, over those pre-retirement years, using the same system that most of their peers are enjoying in a tax-free pension environment.
DON’T WASTE MONEY PAYING TAX WHEN YOU DON”T HAVE TO.
In fact I am willing to promise that you can improve your annual retirement income by on average 5% by implementing the Transition to Retirement Pension coupled with a Salary Sacrifice strategy for 5-10 years before retirement.
Benefits of a Transition to Retirement Strategy
Give your retirement savings a boost – your super balance will keep growing as you make self-employed contributions or your employer continues to make contributions into your super account.
Lower you taxable income – If you choose to salary sacrifice some of your pre-tax income into your super, you can further boost your retirement savings. This is because your salary sacrifice contributions are taxed at a lower rate (15% for those earning less than $250K) when they go into your super so that saves an immediate:
- 19.5% for anyone earning more than $37,000 and less than $80,000 as your marginal tax rate is 34.5% inclusive of Medicare on every dollar over $37,000
- 24% for anyone earning more than $87,000 and less than $180,000 as your marginal tax rate is 39% inclusive of Medicare on every dollar over $80,000
- 34%* for anyone earning more than $180,000 and less than $300,000 as your marginal tax rate is 49% inclusive of 2% Medicare and 2% Temporary Budget Repair levy on every dollar over $180,000
Oh yes, that 2% extra Temporary Budget Repair levy applies to those earning over $180,000 per year.
July 1 2017 changes: From this date by moving to pension phase your balance in the transition to retirement pension account no longer moves to a “tax exempt” status so it will continue to pay tax at up to 15% on dividend income, rental income or capital gains. That is why it is essential you look for or are aware of triggers to move to a full Account Based Pension
A Transition to Retirement (TTR) strategy remains valid after the changes announced in the 2016 Budget.
Pay less tax and keep the same take home amount
You can enjoy generous tax concessions for both retirement income streams and super contributions while still taking home the same net amount. you are just taking the money from the most tax effective source. Remember after you turn 60, you won’t pay any tax on your pension income stream payments.
Pre July 1 2017 Case Study: Ann aged 59 on 01 July 2013 has $300,000 in Superannuation. She has an annual income of $95,000 and wants to keep her take home pay the same but look at a TTR combined with salary sacrifice to improve her retirement savings.
Results for 2016-17 Year
Without Transition to Retirement Strategy
Drawdown Percentage 0.000 %
Package $104,025
Plus Assessable Pension Income $0
Less Concessional Contributions $9,025
EQUALS TAXABLE INCOME $95,000
Less tax and Medicare $24,682
Plus Rebate $0
EQUALS AFTER TAX INCOME $70,318
Plus Exempt Pension Income $0
Less Non Concessional Contributions $0
EQUALS TAKE HOME INCOME $70,318
Accumulation Start Balance $300,000
Plus 85% of Concessional Conts $7,671
Plus Non Concessional Conts $0
Plus Interest $13,701
EQUALS ACCUM END BALANCE $321,372
FUND ASSETS END BALANCE $321,372
With Transition to Retirement Strategy
Drawdown Percentage 5.600 %
Package $104,025
Plus Assessable Pension Income $0
Less Concessional Contributions $35,000
EQUALS TAXABLE INCOME $69,025
Less tax and Medicare $15,361
Plus Rebate $0
EQUALS AFTER TAX INCOME $53,664
Plus Exempt Pension Income $16,800
Less Non Concessional Contributions $146
EQUALS TAKE HOME INCOME $70,318 (so same net take-home pay)
Pension Start Balance $300,000
Less Pension Payments $16,800
Plus Interest $14,585
EQUALS PENSION END BALANCE $297,785
Accumulation Start Balance $0
Plus 85% of Concessional Conts $29,750
Plus Non Concessional Conts $146
Plus Interest $782
EQUALS ACCUM END BALANCE $30,678
FUND ASSETS END BALANCE $328,464
In this example Ann keeps the same take home pay of $70,318, adds an extra $7,092 to her Retirement Savings and pays $4,071 less in tax. That’s just one year with no change to her investment profile as it has nothing to do with the actual investments. If you do not need the pension income then just put it back in to the fund as a non-concessional contribution,
Don’t ignore these crucial annual savings as they add up to that extra holiday a year in retirement.
There are benefits to this strategy for anyone over 55 but it becomes a “win-win” situation once in the 59-64 age group. So don’t ignore this strategy and please pass it on to others you think it may suit.
Why not click here to Schedule a Meeting by phone, face to face or via Skype if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or online via Skype.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
Fred (@smithfred412)
/ January 8, 2014The great advantage of an SMSF is that you’re in control. Asset allocation, tax strategies, insurance options and retirement planning – it’s all up to you. Superannuation has changed in the last year and there will be more paperwork to go with it in the coming year.
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ubetido
/ September 5, 2013Hi Liam
How much are your fees.
How much do you need to have in your Superannuation to consider a SMSF
Do you deal exclusively with SMSF or do you do other Financial planning.
Regards Alf
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The SMSF Coach - Liam Shorte
/ September 5, 2013Hi
Thank you for the enquiry. Our fees depend on your needs but we have a minimum Strategy Retainer of $1,870 (incl GST). We normally meet with you to discuss your need and then provide a written quote on a Fee for Service basis via a Letter of Engagement. So you know before you commit what your costs are likely to be.
To set up an SMSF I still believe you should have a minimum $150,000 if you are willing to use one of the online administrators and be prepared to scan and deal with queries online. Otherwise you need about $250,000 if you are going to use a local Accountant as their fees are higher but they offer a more personalised service.
I find that in general about 3-5 out of 10 people we deal with are suited to a SMSF so we do have a full range of alternatives available for clients to use. We are happy to advise on Industry Funds, Employer funds, Retail and Super Wraps. Working on a Fee for Service basis means we provide the advice, structure and strategy regardless of the product. Our main Financial Planning website is http://www.verante.com.au . As most successful planning revolves around the strategies such as salary sacrifice, super splitting , transition pensions, re-contributions and insurance, we fidn that is where the value is added by an adviser. So objectives, strcuture and strategy first with product the last thing you should consider.
We have tried to structure our business to suit people’s needs which usually revolve around Life Events, such a reaching 50,55, 65 etc or starting family, redundancy, divorce or self-employment.
So please take up our offer of a Free Initial consultation and think of it as a Financial Health Check!
best wishes
Liam
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