Examples of TTR Strategy
Topping up part-time income
John is 55. He earns $70,000 per year, which leaves him with $54,100 after tax. He needs all of this for his living expenses, but he would like to work for just four days per week.
If this happens, his net income would drop as follows:
| Gross Income (4/5 of $70,000) | $56,000 |
| Income Tax & Medicare - Mature Age | |
| Worker & Low Income Tax Offsets | $11,030 |
| Net Income | $44,970 |
| Income Shortfall ($53,900 - $44,870) | $9,130 |
John has $150,000 in superannuation (all from taxed sources), and he uses this to start a non-commutable Super Income Stream. He chooses to receive pension payments of $10,206 in the first year, which is within the maximum allowable.
Now his position looks like this:
| Salary (4/5 of $70,000) | $56,000 |
| Super Income Stream (SIS) | $10,206 |
| Income Tax & Medicare - Mature Age | |
| Worker Tax offset - SIS tax offset | $12,106 |
| Net Income | $54,100 |
The result is that John can maintain his lifestyle working only four days a week. If he chooses, he can slowly transition to retirement over several years.
Word of Warning: As John is now accessing $10,206 of his superannuation in year one only $4,284 (after contributions tax is taken into account) is being contributed by his employer based on 9 % super guarantee.
Full time work + Salary Sacrifice
Bernadette is 55 and earns $70,000. However, she wants to continue working full-time and save for her retirement. Her living expenses are $45,000 a year, which gives her a savings capacity, after tax, of $9,100 a year.
Bernadette can increase her super contributions via a salary sacrifice arrangement with her employer, which will allow her to make contributions in pre-tax dollars.
If Bernadette were to salary sacrifice in lieu of contributing the $9,100 to her superannuation in after tax dollars, her superannuation account would be enhanced by $2,562
Salary Sacrifice + Super Income Stream (SIS)
She can also start an income stream, just like John, but drawing the maximum allowable income stream payments of $15,000 (being 10% of her current superannuation balance of $150,000). This will allow her to make even greater salary sacrifice contributions. How does this strategy compare with purely salary sacrifing as by the example above.
By using this Transition to Retirement strategy, Bernadette's retirement savings will be enhanced by a further $716 per annum.
The comparisons of the three scenarios are shown in the table below:
| Bernadette’s Situation |
After Tax Contribution
|
Salary Sacrifice
|
TTR Strategy
|
| Salary |
$70,000
|
$70,000
|
$70,000
|
| Plus Super Income Stream |
$0
|
$0
|
$15,000
|
| Less salary sacrifice |
$0
|
$13,720
|
$32,210
|
| Income Tax & Medicare – MATO & SIS tax Offset |
$15,900
|
$11,280
|
$7,790
|
| NET INCOME |
$45,000
|
$45,000
|
$45,000
|
|
|
|
|
|
| Superannuation Situation |
|
|
|
| Employer Contribution |
$6,300
|
$6,300
|
$6,300
|
| After tax Contribution |
$9,100
|
$0
|
$0
|
| Salary Sacrifice Contribution |
|
$13,720
|
$32,209
|
| Less Contribution Tax (15 %) |
$945
|
$3,003
|
$5,776
|
| Less TTR Pension |
|
|
$15,000
|
| Net Contribution to Super pa |
$14,455
|
17,017
|
$17,733
|