Ask Noel
I have recently heard about transition to retirement and would like some advice. I am 55 and earn good money, with $70,000 in super, and $10,000 in shares. My wish is to secure the future for myself and my wife, who works part time.
A transition to retirement pension involves reducing your income by increasing the amount you salary sacrifice to super and making up the shortfall in your take-home pay by starting to draw income from your super in the form of a pension. You also save tax within super because the earnings and capital gains on investments are tax-free in the pension environment of super. If you are on a high income, it may be worthwhile; you will need to ask an adviser to do the numbers for you.
My wife and I are retired, so our self-managed super fund is in a pension phase. Will the sum of the combined allocated earnings be the basis of the new proposed 15 per cent tax on income/earnings, or will each individual pension account in our self-managed super fund be assessed separately for this tax? In some "combined" scenarios, the earnings could jump above the $100,000 hurdle.
The proposed regulations make it quite clear that the $100,000 limit is for each individual. While this is good news, it does mean more bookkeeping for your fund.
My husband is 53 and earns $150,000 a year and will retire in 10-12 years. We have a mortgage on our home of $70,000, which is valued at $490,000. We are selling an investment unit, which will net us $35,000 and will be put on our mortgage. We also have $25,000 in shares, which we are going to sell in the next 12 months and use to pay off our mortgage. My husband will then salary sacrifice as much as is allowable into his super, which is at $400,000. We hope to retire with about $900,000. We have no other debts and will downsize in about three to four years time. I am not working. Should we continue with this plan or leave the mortgage payments unchanged and salary sacrifice to the max now?
You will owe only $35,000 on your mortgage once the proceeds of the investment unit are paid into it - I assume you have taken potential capital gains tax into account. This puts you in a very good position and I certainly wouldn't be selling good shares to pay back any more of the debt; in fact, you could even take advice about borrowing possibly an extra $75,000 against the property so you have a total of $100,000 in shares working for you. If well chosen, they should give you a good return in the long term. You should certainly salary sacrifice to the maximum because such contributions lose just 15 per cent, whereas money taken in hand loses 38.5 per cent. Keep in mind that total concessional contributions from all sources cannot exceed $25,000 a year.
Two years ago, I converted my house to a rental property and now live in my wife's house. I put 15 per cent of my wages aside for emergencies on either house. Is an offset account better than a redraw account on the rental property mortgage to hold this money, or would I be better off putting the funds somewhere else? There is no mortgage on my wife's house.
An offset account is fine, but there are other strategies that would depend on your age and overall situation. For example, if you're over 50 and have good liquidity, you may be better off to salary sacrifice the 15 per cent into super.
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The explainer
Hide the credit card and clear the debt
I am female, 51, and divorced. I have credit card debt of $19,000 and a personal loan of $21,000 because they were both in my name before the divorce. I have managed to keep my super of $96,000. I rent a unit and earn $84,000 a year, with employer super of 15 per cent. I have no other assets. My monthly expenses are $1870 rent, $800 on the credit card and $750 off the personal loan. The rest of my salary is for living expenses and I try to save $300 a month. What advice can you offer to help me get back on track and reach a healthier financial status? I feel that buying a property is out of the question.
Hang in there - if you add the $300 you save each month to the repayments on the credit card, it will be paid off in 18 months. Then you can use the $1100 a month no longer needed for the credit card to speed up the payments on the personal loan. Once you're out of debt, you can take advice about strategies to boost your retirement resources. If you're paying interest on your credit card, consider balance transfers to take advantage of the lower or zero-interest periods available. The important thing is to leave the credit card unused.
Frequently Asked Questions about this Article…
A transition to retirement (TTR) pension lets you increase salary sacrifice into superannuation while making up the shortfall in take‑home pay by drawing an income stream from your super. The idea is to reduce your assessable salary (so you pay less tax now) while the earnings and capital gains inside the pension environment are tax‑free. It’s a handy strategy if you want to keep working but cut taxable income.
A TTR pension is generally most worthwhile if you’re on a relatively high income because the tax advantages of salary sacrificing into super can outweigh the complexity. It’s important to get an adviser to run the numbers for your specific situation before you start, as the benefits depend on your salary, super balance and cashflow needs.
Currently, earnings and capital gains on investments in the pension phase of super are tax‑free. The article notes a proposed regulation that would introduce a 15% tax on some pension income/earnings above a threshold; under the proposed rules the $100,000 limit would apply to each individual rather than being combined. Keep in mind those were proposed changes and you should watch for any final legislation or seek advice.
According to the proposed regulations discussed, the $100,000 limit would be assessed for each individual pension account, not on a combined basis. That means you’ll need to track allocated earnings for each member separately, which can mean extra bookkeeping for your SMSF.
The article advises not to sell good shares just to pay down more mortgage if those shares are expected to deliver good long‑term returns. Instead, consider paying down only what makes sense and using salary sacrifice to take advantage of concessional tax treatment in super. If you’re confident, you might even consider borrowing against property to increase your investment exposure—always get tailored financial advice first.
Total concessional contributions (including salary sacrifice and employer contributions) from all sources cannot exceed $25,000 a year. Salary‑sacrificed amounts are generally taxed at 15% in super, which can be lower than your personal marginal tax rate and make salary sacrifice attractive for many people.
An offset account is a perfectly acceptable place to hold emergency savings for a rental mortgage, and it reduces interest charged on the loan. However, which strategy is best depends on your age and overall situation—for example, if you’re over 50 with good liquidity you might be better off salary sacrificing into super instead of keeping extra cash in an offset.
Follow a clear repayment plan: apply any extra savings to the high‑interest credit card first (the article’s example paid off $19,000 in 18 months by adding $300/month), then redirect the freed cash to speed up the personal loan. Consider balance transfers to take advantage of lower or zero‑interest introductory periods, leave the credit card unused, and once debt‑free seek advice on boosting retirement savings.
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