Transitioning To Retirement?
MBA, BSc, DipFP
Financial Planner / Managing Partner
Transitioning To Retirement?
What will you do with your time and how will you manage on a fixed income? What you need is some advance planning. Working out how you will be transitioning to retirement and implementing an appropriate strategy, can not only help you adjust to having more time to yourself, but can also provide you with an opportunity to work through those financial concerns, ensuring you have sufficient funds for the coming years.
Planning the move to retirement can be an exciting time, but it can also be nerve-wracking.
Why Is A Transition To Retirement Strategy Important?
Once upon a time we thought of retirement as an all or nothing concept, but these days, more and more people are making the move to retirement in increments. Going to part-time work is a great way to do this. You can continue to earn money and keep your mind active.
With the right financial products in place, it’s possible to not only continue to enjoy the lifestyle you are used to, but to increase your superannuation balance while you’re at it.
Something that can be of enormous benefit is a Transition to Retirement Income Stream. These products are sometimes called TRIS, TTR or TTRIS, but all operate in the same way.
What Is A Transition To Retirement Income Stream?
A TRIS is a product offered by many superannuation providers and is an account set up with a sum taken from your existing Superannuation account. This then provides you with an income stream, which can either supplement reduced income if you move to part-time or casual employment, or be used to offset increased contributions to your superannuation account, whilst providing tax benefits on both the income received, and salary sacrifice or personal contribution amounts.
Who Can Benefit From TRIS Products?
Whilst everyone can benefit from having a financial strategy in place, there are rules around who can use financial products designed to assist in the transition to retirement. Depending on the year you were born, you can start taking advantage of these products between 55 and 60.
However, as with every financial product, whether these products are suitable for you depends on your own personal circumstances, so it’s wise to seek professional advice.
How Do You Use A TRIS?
There are two key ways to use a TRIS:
- To benefit from the tax advantages afforded by the product whilst at the same time boosting your superannuation balance.
- To supplement your income if you move to part-time or casual work.
How you choose to use a TRIS can change over time. If you are still working full time when you establish one, you can use it to improve your tax position and bolster your superannuation savings, but as you move closer to retirement, if you decide to work part time, that same TRIS can be used to supplement your income.
What Are The Benefits Of A TRIS?
- Tax & Super Savings
There can be enormous tax benefits to setting up a TRIS whilst you are still working. From age 55 to 59 the income you receive from a TRIS receives a tax offset of 15%. From 60 onwards, the income is tax free. If you then use the additional income you are receiving from your TRIS to live on while salary sacrificing or making personal contributions from your other income, you can continue to build your superannuation balance whilst taking advantage of these tax concessions.
- Supplementing Your Income
If you are considering moving from full-time to part-time, or even casual work you will no doubt be concerned about managing on a reduced income. A TRIS can provide you with an income stream to replace that lost income. This not only ensures you can continue to enjoy your current lifestyle, but allows you so ease into retirement activities whilst still enjoying the stimulation of working. And if you find you’re not quite ready for retirement, you can go back to full time work while taking advantage of the other benefit of a TRIS.
Are There Any Downsides To Setting Up A TRIS?
The only real downside is that it can be a little complicated. So it is worthwhile seeking qualified financial advice on how to set this up, and how much you should transfer into the TRIS, bearing in mind the key words here are ‘income stream’, meaning you cannot take a lump sum from this account.
How Much Can I Invest In A TRIS?
The minimum investment in a TRIS is $25,000, and the maximum is limited by how much you have in your superannuation. You should be aware, however, that once you have set up a TRIS you cannot make contributions to it, so it is important to keep an operating balance in your traditional superannuation fund to allow you and your employer to continue to make contributions until you reach full retirement.
How Does A TRIS Work?
A TRIS does just what it says. It provides you with an income stream as you transition into retirement. You are not able to take a lump sum from a TRIS.
Once it is set up you must take between 4% and 10% of the value of the TRIS as income each financial year.
So, if you set up a TRIS with $100,000 you can draw down anywhere between $4,000 and $10,000 income annually. The more you have in the TRIS, the greater the income. However, it is worth remembering that this amount comes out of your superannuation, and so reduces the amount of super you receive on retirement.
What Happens When I Retire?
If you still have money in your TRIS when you retire, it will automatically convert to an account-based pension product, which will continue to provide you with an income stream. There will be no upper limits on withdrawals.
A Word About SMSFs & TRIS
You are able to start a TRIS from your SMSF (Self Managed Super Fund) so long as the Trust Deed allows for it. That said, it is a little more complex for SMSF owners. As always, professional advice is essential.
Of course, all this takes planning, and asking a qualified financial planner for advice on how to make this work for you is the best place to start.
If you would like professional advice on how a TRIS can help you transition towards retirement, Manly Financial Services has the expertise and experience to help. Call us on (02) 9976 3388 or contact us via the below link.