Mega-boost your super with TTR
TTR case study
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Maggie’s transition to retirement plan
Maggie is a primary school teacher and has recently turned 60. Even though she loves her job, she has been thinking about cutting back to spend more time with family. But before making the change, she wants to build up her super balance.
Although she’s not ready to retire just yet, Maggie has decided on a Transition to Retirement (TTR) strategy. She will work full-time until age 62 and then switch to part-time until age 65.
Maggie's story
Right now, Maggie is earning $90,000 a year ($70,412 after tax) and has $400,000 in super.
For the next two years, Maggie chooses to salary sacrifice $44,586 into her Triple S super. That might sound like a lot – but just wait, you’ll see how she makes it work.
By salary sacrificing, she boosts her super and saves on tax, since these contributions are taxed at just 15% when withdrawn, which is lower than her income tax rate. And because Triple S doesn’t have an annual limit on salary sacrifice contributions, she won’t exceed any caps1.
With a salary sacrifice arrangement in place, Maggie’s before-tax salary from her employer reduces to $45,414, and her take home pay is now $40,412. That’s $30,000 less than what she was previously taking home – but this is where a TTR Income Stream comes in.
Maggie opens an Income Stream account with $300,0002 and draws the maximum 10% ($30,000) from it. These payments aren’t taxed, so her total income remains the same and she’s now taking home $70,412 just like before.
She has effectively swapped a portion of her taxable income with tax-free income, while also benefiting from lower tax on her salary sacrifice contributions. Before implementing her TTR strategy, Maggie was paying $19,588 in income tax and Medicare levy each year. By salary sacrificing and drawing from her Income Stream, she reduces her income tax and Medicare bill to just $5,002 – saving $14,234 in tax each year.|
Financial summary |
Before TTR |
With TTR from age 60 |
|
Gross salary (before tax) |
$90,000 |
$90,000 |
|
Salary sacrifice to super |
$0 |
$44,586 |
|
Income tax & Medicare levy paid |
$19,588 |
$5,002 |
|
Take home pay (after tax) |
$70,412 |
$40,412 |
|
Income Stream payments |
$0 |
$30,000 |
|
Total available income |
$70,412 |
$70,412 |
After two years, she decides to reduce her workload to three days a week and earns $54,000 per year. Maggie could stop her salary sacrifice and continue to receive regular tax-free payments from her Income Stream to top-up her take-home pay.
How much tax could Maggie save?
$19,588
Income Tax and Medicare levy paid before TTR
$5,002
Income Tax and Medicare levy paid after TTR
$14,586
Estimated savings
$6,688
Less allowance for super tax (15% - see note below)
$7,898
Overall estimated net savings
Note: With Triple S, contributions tax isn't deducted upfront, instead, tax is applied when a benefit is paid (including when funds are transferred to an Income Stream). While the $6,688 tax shown above isn't deducted from contributions at the outset, we've included it in the example to demonstrate the full tax advantage of this strategy. For more information on how tax is applied, refer to the Triple S PDS and Reference Guide.
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Assumptions for Maggie’s TTR strategy
- Maggie has a Triple S account and is currently receiving super contributions exclusively from her South Australian public sector employer.
- 15% tax is deducted when funds are transferred from Maggie’s Triple S account to the Income Stream account.
- Maggie reviews her TTR strategy annually to ensure she has sufficient funds in her income stream account. The maximum income she can draw is limited to 10% p.a. before age 65 unless she retires.
1 A lifetime untaxed plan cap currently $1.780m applies. Refer to the Triple S Product Disclosure Statement for further information. If you also receive concessional contributions in a taxed fund, any concessional contributions made to Triple S will be counted towards your annual concessional contributions cap.
2 To transfer $300,000 into the Income Stream, Maggie needs to move $352,941 from her Triple S account to cover the 15% tax that applies when a super benefit is paid.