Steve's Story

Less work. More golf.

When we first talked with Steve, he’d just celebrated his 55th birthday. He was working full-time on a salary of $125,000  - but wanted to work less so he could practice his golf swing in preparation for retirement  - and his attack on the Seniors' Golf Circuit.

Steve's employer was happy for him to work part-time on a reduced salary of $86,250. But Steve needed to supplement his income from other sources.

In the first year, he'll receive a further tax saving of $5,062

We looked closely at Steve’s financial position. Alongside his salary, he had $350,000 in a superannuation fund and $100,000 in cash from the recent sale of an investment property.

Steve had reached the minimum age required to access his superannuation benefits (his preservation age), so he could invest some, or all, of his superannuation money in a pre-retirement pension.

We advised Steve to move the $100,000 cash into his superannuation fund as a personal, non-concessional contribution.

We then suggested he transferred the entire $450,000 into a superannuation pension. He received a pension payment of $35,000 in the first year. Included in this was a tax-free payment of $5,000.

Steve's pension payments in the following years will be based on his pension account balance on 1 July  - and the impact of market returns.

So how did this affect Steve in his first year of starting a pre-retirement strategy?

He maintained his pre-tax income, reduced his tax liability, increased his after-tax income, and had the option of contributing any surplus income into his  superannuation fund. Most importantly, he was able to reduce his work hours, follow his retirement ambitions and maintain his income level.

Income - and growth too.

Although Steve's plan involves drawing down on his superannuation savings through his transition-to-retirement pension, the strategy is also effective at growing his super.

This is due to two reasons. Firstly, Steve sacrifices more of his salary to super than he receives from his transition-to-retirement pension. Secondly, using a transition-to-retirement pension means Steve doesn't pay tax on any earnings from the assets which back his pension.

If Steve's $450,000 pension balance grows 7.5 per cent - that's $33,750 - in the first year, he'll receive a further tax saving of $5,062. (And more tax savings could be made if Steve requires less income on which to live.)

Over ten years, these benefits will make a big difference to Steve's retirement - especially if he maintains this strategy after he turns 60 when his pension income becomes tax free. By then, of course, we hope he'll be a big name on the Seniors' tour.