Join our investing community

Transition to retirement - is it always good

Discussion in 'Superannuation, SMSF & Personal Insurance' started by Dissed, 30th Apr, 2011.

  1. Dissed

    Dissed Active Member

    Joined:
    28th Aug, 2008
    Posts:
    34
    Location:
    Sydney, NSW
    Came across this calculator from State Super and it seems to be saying that I am better off without getting into TTR - option 2 is best. Can any one see any errors/assumptions here. I can see one - Pension account will not pay 15% income tax whereas super account will and that should be factored in somewhere.
     

    Attached Files:

  2. JPM Group

    JPM Group Member

    Joined:
    7th Nov, 2010
    Posts:
    21
    Location:
    Moorabbin, Victoria
    Dissed, no - the TTR strategy will always put you in front.

    For TTR clients age between 55-59, the TTR pension income will be added to your assessable income and subject to your MTR. You will however get a 15% rebate on that pension income. The main aim is to structure this strategy so it does not impact your personal cash flow. So the TTR plus SSacrifice is the key.

    You will receive slightly less in your hand from your employer, however the pension will form the difference of your pre strategy income. There will be some tax benefits in your personal name and more importantly converting the super from accumulation to pension will reduce the tax you pay in your superannuation. Plus any franking credits from shares you will receive in full.

    Keep in mind the concessional limit of $50,000 when working this out.

    The calculation that you provided looks to be wrong, the tax on the gross income does not even match up. The tax on $170K gross income is approx $53K not the $50,850 so this is out. The last column is certainly out, the tax should be $55K with a 6K pension rebate, 15% on $40,000.

    Also why would you salary sacrifce $34,700 and receive $40,000 pension income especially when the TTR pension it is going to be assessed.

    But to answer your question, the TTR is certainly a benefit and even more of a benefit at age 60 as the TTR pension is tax exempt. You need to get good advice to structure this right for you.

    Hope this helps.
     
  3. manoj

    manoj Member

    Joined:
    25th Nov, 2008
    Posts:
    15
    Location:
    sydney
    Not always true

    I have done some calculations myself

    It is true that pension assets will not pay any tax on income and pension withdrawal is included in income with 15% rebate.

    In a situation where the fund makes no money or say less money - the return is poor and the pensioner is high income even after full salary sacrifice - the 15% rebate as a tax shelter is sometimes not enough.

    This can be explained with an example

    Say a 55 year old has $300K in pension who earns $250K + super - since the sacrifice can be only $25 to reach the $50K cap - the gross income is still high - to which you have add the minimum pension - for argument sake assume 4% is returned in year 2012 onwards....

    this means that $12K will pay 31.5% tax - which means that the fund should earn atleast $27K to match the extra tax outside super - which is about 9% return on $300K. A tough ask in the current climate...

    Otherwise will always recommend TRIS or TRIP .... the only damn problem is that once you commence it - if you have a bad year - you cannot stop it...

    www.smsfauditlink.com.au
     
  4. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Manoj
    Yes but for people who are 60yo TTR will always be a better option don't you agree?
     
  5. Dissed

    Dissed Active Member

    Joined:
    28th Aug, 2008
    Posts:
    34
    Location:
    Sydney, NSW
    Manoj

    Thanks very much. Could you please give more information on "if you have a bad year". Do you mean the if in a year the pension fund's earnings are poor?
     
  6. manoj

    manoj Member

    Joined:
    25th Nov, 2008
    Posts:
    15
    Location:
    sydney
    Billv
    You are right TRIP has two results - one for 55 to 59 and then one for 60 to 65 - as once you are over 60 and over any pension is NOT included in your income - once you are 65 and over - basically there is no such thing as TRIP as you are "retired" as per SISR even if you are working - which means you can withdraw more than 10%

    TRIP strategy is for 55 - 59 - that is when the fun starts = sell everything to pump your super....and ends once you are 60 as by then all your assets should be super....


    Dissed

    A bad year is when the income is low - unrealized gain do not count... BTW most SMSF i have seen lately under TRIP are getting into borrowing and super gearing phase which means that will be very little income of the smsf and very little of tax on earnings - gearing is attractive for those who are in this age bracket - the idea is to buy a retirement home in super at 55 with borrowing and when 65 and ready to retire - buy it from the smsf....to live in it.

    So if you want to retire in gold coast - the time to buy is now in the smsf with borrowing while the market there is depressed.....
     
  7. AsxBroker

    AsxBroker Well-Known Member

    Joined:
    8th Sep, 2007
    Posts:
    1,448
    Location:
    Sydney, NSW
    Hi Dissed,

    Transition to retirement (TTR) will give you the best outcome when properly done.

    JPM is correct that the numbers don't look right to give you the optimum efficiency. Though I would dispute that TTR will always give you the best scenario, a low income earners such part time workers at a hospital salary packaging would have potentially an average tax rate under 15% and hence shouldn't salary sacrifice as this would increase their average tax rather than reduce it, in this case a NCC strategy may be better off for government co-contribution.

    Any tax-free component is returned to you tax free, in this example there is 31% tax-free. The remaining 69% is assessed for tax purposes and receives a tax rebate of 15%, naturally versus the salary sacrificing the savings for the taxable portion is a marginal 1.5% (Medicare Levy).

    PS That is First State Super Industry Superannuation Funds, Retirement Plans & Schemes - First State Super not State Super State Super - SAS Trustee Corporation .

    You may want to discuss with State Super Financial Services State Super Financial Services Australia

    Cheers,

    Dan

    PS This is general information and not financial advice, before making an investment decision you should speak to an FPA registered Financial Planner.
     
  8. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Manoj
    So if I understand you correctly you're saying that I should start selling my IP's to my SMSF progressively (so that I don't pay all the CGT in 1 go) when I reach 55 so that by 60 all my assets are in super where the rental income in tax free?
     
  9. manoj

    manoj Member

    Joined:
    25th Nov, 2008
    Posts:
    15
    Location:
    sydney
    Billv

    Yes correct! the mistake you made in purchasing property outside super or earlier super could not borrow - to fix this > now is the time to move to super - so that all future cgt is nil and income tax on income is nil.


    BUT.....but but there is a problem...

    the only problem is that your smsf cannot purchase residential property from you - read Section 66 of the SIS Act ....

    However, there is a solution to this problem .... but don't know if this will apply to you > solution = read SMSFR 2009/1 example number 13 / 14 & 15

    What i am giving you above is gold ... cherish it..

    one more peice of silver - read section 62A of stamp duties act of NSW - if you own the property and if the smsf is acquiring from you - your smsf will not pay any stamp duty on tranfer...

    if the smsf has to borrow to acquire your property and use a bare trust section 62A (3) the duty is only $500....this is useful if you have a loan on the property outide super or want the super fund to borrow so that you can pay off your non-deductible home loan...



    If you want find me - google Manoj Abichandani
     
  10. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Hi Manoj
    I'm not 55 yet (I still have a few years to go) but this is very useful info.
    many thanks :)