How to use Industry Super Funds’ Transition to Retirement (TTR) calculator

Hi, I’m Kate from SuperGuide. Welcome to our demonstration of the Industry Super Funds Transition to retirement calculator. This is a simple and quick to use calculator that can give you an idea of how a transition to retirement strategy may benefit you. It does have some drawbacks, and we’ll look at those as we go through.

First of all, you just need to enter your current age and the age you plan to retire. We’d say we’re currently age 60 and plan to retire at 67. You’ll see this pop-up box come up, which explains that a transition to retirement pension is not available beyond age 65. Now, that’s true, but you can still open a retirement pension. That could be even more beneficial, in fact, because retirement pensions have tax-free investment earnings versus taxable earnings in a transition to retirement pension. You can also withdraw any amount you want, as long as it’s at least the minimum. There is no maximum withdrawal from a retirement pension.

So you could, in fact, continue to salary, sacrifice, and withdraw a tax-free income from super after you’re 65 to continue to build up your retirement balance. But this calculator can’t take that into consideration. It’s unfortunately not sophisticated enough, but it’s still useful.

Let’s change it back down to 65 so that the calculator behaves. When we move on, you’ll see on this second page that there are four options for you to choose from about what you want to use a transition to retirement strategy for. I’m just going to work through these one by one so that you can see how the calculator behaves.

The first option is that you want to grow your super and still receive the same income. You can’t afford to make additional contributions to super at the moment without receiving some source of additional income because you need to maintain your take-home pay. That is quite a common situation, so we will look at that one first. We’ll say we’re still working and have a salary of $65,000 per year and a salary sacrifice of zero. We’re not currently putting any money into super, plus a super balance of $250,000. Just click Next, and the calculator will actually give you results straight away. You can see it really is very simple and quick to use. This shows us that if a transition to retirement strategy was implemented, you could maintain the same take home pay, but end up with $21,200 extra at retirement.

Then it shows you how. You would start salary sacrificing $20,350 per year, and replace that with a tax-free income from super. So although you’re salary sacrificing $20,000 and only withdrawing $13,000, because the income from super is tax-free versus your taxable income from work, you will still have the same take-home pay if you were to follow that strategy.

Now, the reason it’s suggesting $20,350 as the amount to salary sacrifice is that that will bring this person up to the maximum concessional contribution cap of $27,500 for the year when you include what their employer contributes. And you can see that if you click this little button here, how we came up with the numbers. So it shows here, based on the information you’ve provided, it looks like your employer pays this amount, $7,150. You have an extra $20,350 that you could contribute before reaching the limit. So the calculators just maximised that and then replaced that salary sacrificed income with tax-free withdrawals from a pension.

Unfortunately, the contribution situation is not quite as simple as that for many people. And in particular, this individual that we’ve put into the calculator, their super balance is only $250,000, which is well below the $500,000 cap that applies to use a provision which is called carry forward concessional contributions.

If this person hasn’t been salary sacrificing in the past, as we’ve told the calculator they haven’t, they very likely have unused concessional cap space from prior years that they could carry forward. They could actually contribute more than the standard $27,500 cap in this financial year without exceeding the limit. The calculator, unfortunately, is not sophisticated enough to take that into consideration. That’s why even after using a calculator like this, you may need to do some more of your own research or consult a financial planner who can look into your situation more and tailor the result more properly to you and make sure that you’re getting the most out of your strategy.

Again, though, if we click this Next button, it shows us just a simplified breakdown of what we would need to do to take action and put this in place. It shows us the weekly numbers to salary sacrifice and withdrawal. You could, of course, convert those to monthly figures if you prefer if you’re paid monthly.

What I’ll do now is press this Start Again button, and I’ll show you how the other options in this calculator work. We saw at the beginning there were four. We’ve done this top one, I want to grow my super. If we select this one, I want to grow my super a lot, and I can manage on less income now. I’ll show you what happens.

Again, we’ll say we’ve got the same income, not salary sacrificing anything, and the super balance is $250,000. You can see now the calculator is just saying to salary sacrifice that same amount, the gap between what the employer is already paying and the contribution limit. It’s not suggesting to take any transition to retirement income from super. Really, what this is, is not a transition to retirement strategy. It’s just a salary sacrifice strategy. Leave your super how it is and just maximise your salary sacrifice.

It’s not as flexible as it could be because although you’ve said you could manage on less income now, you might not be able to afford to reduce your income by quite this much. You can see if you implement the strategy, when we click to the next page, our take home pay would reduce from $1,003 a week to $751 a week. We might have preferred to say, Well, I can only afford for my income to go down to $900 a week, but the calculator doesn’t have that option. It just automatically maximises your salary sacrifice. That’s just something to be aware of, and also that this is not a transition to retirement strategy, but simply a salary sacrifice strategy.

If we go again, though, back to the beginning and start again with the other option. I’ll show you how that works. Now, this one is another very popular reason for people to use a transition to retirement strategy. It’s wanting to reduce work hours, but not being able to afford to go without that income that you’re currently earning. You’d like to replace that income from going part-time with an income from super.

So we can see how that could work. Say again, I’m working, I earn the same income, currently working five days a week, not making any extra super contributions, and my balance is still the same. It says here, based on working four days a week, we could implement a transition to retirement strategy. It would mean that we would have less money in the account at retirement. And the reasons for that are clear. Not only are you working fewer days than before and receiving, therefore, less super contributions from your employer, you’re also withdrawing money from your super to replace those lost earnings. Of course, you would expect to have less at retirement than if you continue to work full-time and not draw an income from super, which is what it’s comparing to.

Again, it shows you how to do that. It says you should still do salary sacrifice and take an income from your super, but it’s suggesting to withdraw more income than in the previous scenarios, and that’s to help replace that lost income from working. It’s minimising the impact on your final super balance by suggesting that you salary sacrifice along with that to maximise your tax advantage and minimise the impact on your final retirement balance from super. It really is quite useful for that if you were planning to go down to four days a week.

You can change this too to see what would be happen if you dropped further days per week. It’s showing you here, if you were only working three days a week, you would perhaps have to accept that you would be earning less in your yearly income. And that’s because of this maximum withdrawal from super. But you could just salary sacrifice less. It’s still recommending you salary sacrifice $18,000 in this scenario. You could salary sacrifice less and not compromise on your take home pay. So again, the calculator is perhaps not quite as flexible as it could be in that situation. If we click Next again, it shows us again this breakdown of what would occur if you were to do what the calculator has demonstrated.

For the last time, let’s start again and I’ll show you how the last option in this calculator works. Again, we’re at 60, wanting to retire at 65, and we just need some extra money right now. We don’t want to reduce work hours, but not managing on what we’re taking home from work. Again, the same salary, not salary sacrificing anything. The same super balance. We can insert here how much extra we need. You can choose per year, per month, per fortnight, per week, how much extra you need.

Let’s say we need an extra thousand dollars a month to live on. Then click Next. It will show us here again how the strategy could work. It’s still predicting less in the account at retirement because we’re asking to draw out additional income, but it’s still recommending to combine salary sacrifice and an income from super to get those tax benefits, but also withdraw enough to get the extra income that we need to live on.

Again, we can press Next, and it shows us more about the breakdown of that. That one could be useful if you’re having difficulty with living expenses and just want to see how to implement that. Again, as I said, it does have a few drawbacks, this calculator. First of all, that it doesn’t take into account you might have unused concessional cap space from previous years, and you can contribute more than the usual $27,500 cap. Also that it’s not quite as flexible as it could be in determining how much you can afford to reduce your income in that second option.

But it’s certainly still a very useful tool. It’s very quick to use, and it can give you a great idea of whether it’s a good idea to consider a transition to retirement strategy, how you might implement that, and if you decide you need further advice before actually putting that in place, you can go armed with more information to a financial planner for that help. I hope this has helped you to understand how to use the calculator and whether a transition to retirement strategy might suit you.