Transition to retirement: The advantages & disadvantages
A transition to retirement (TTR) strategy can be an excellent way to gradually ease into retirement. However, it does come with a few disadvantages that you should have in mind.
Before making your final decision, take a look at some of the essential transition to retirement advantages and disadvantages.
Transition to Retirement Advantages
Pre-retirees in Australia are increasingly using a TTR pension to boost their finances while enjoying a more flexible lifestyle. Here are the top benefits you’ll enjoy if you use yours.
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Working fewer hours
When you use a transition to retirement strategy, you can work less, because you’ll supplement employment income by using your retirement income stream.
With more lifestyle flexibility, you can spend more time with family and friends, and make a plan for all the leisure time you’ll have once you retire.
The best part is you can finally go on that long-awaited vacation to cross your favourite destinations off your bucket list.
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Still receiving super contributions
One of the biggest transition to retirement advantages is that you’ll continue to receive contributions to your superannuation. That’s because you’re not retired yet.
A TTR plan lets you use a certain amount of your retirement savings, which you continue to grow while working.
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Paying less tax
If you’re 55-59 years old, your TTR strategy will offset 15% of your income in tax returns. If you’re 60 or older, you won’t have to worry about taxes because your pension would be entirely tax-free.
Transition to Retirement Disadvantages
There are some drawbacks to starting a TTR plan. Here’s what you should have in mind.
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Decreasing your retirement savings
Of all the transition to retirement disadvantages, this one might be the most inconvenient.
That’s why you should carefully consider if and when to start a TTR plan. After all, you need your retirement savings to last many years once you finally retire. The earlier you start using the money, the sooner you might burn through all of it.
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Facing withdrawal limits
Another disadvantage of transition to retirement is the withdrawal limits.
The minimum you can withdraw per year in Australia is 4% of the balance in your account. The maximum is 10%.
That means you need to be extra careful when determining the amount of money you would like to transfer when opening your TTR account.
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Potentially going over the contribution caps
Transition to retirement may allow a continued stream of super contributions, but it places caps on before-tax and after-tax contributions.
In case you go over the caps, you’ll face different marginal tax rates. They’ll depend on whether you choose to withdraw the excess contributions or leave them in your account. Make sure you fully understand the contribution caps before using the transition to retirement.
Ease into Retirement with Retirement Your Way
Retirement Your Way offers a fantastic opportunity to anyone aged 55 or older who’s looking to ease into retirement in style and comfort.
Our retirement villages with aged care facilities in Australia aren’t only for retirees. They’re great for anyone who’s still working but wants to enjoy the benefits of a flexible and shared retirement lifestyle.
Our apartment communities come with a variety of activities and retirement care services, so you would never want for anything.
We also offer HomeCare Your Way packages for anyone who might need extra help with domestic duties, personal care, cooking, shopping, transportation, paying bills, or any other kind of support.
We’re here to help you transition to retirement and make sure you always stay safe, well-cared-for, comfortable, and happy.
If you have any questions about our retirement villages or any of our services, feel free to give us a call at (02) 8708 4700 or get in touch with our friendly team online.