Saying goodbye to work … slowly

SUMMARY: Retiring too early? Don’t, there are plenty of reasons to stay working until you’re really ready to ride off into the sunset.

The idea of turning in your badge, at the end of a long career, is becoming increasingly unpopular. For some, it’s actually dreaded.

More and more, Australians want to continue working beyond what society deems is a respectable age to retire.

Often, it’s not all about earning some extra money – it’s more about identity, friendships and feeling valued.

But there are also great financial reasons to continue working. And if the lifestyle and identity reasons are backed with solid financial reasons, why would you go saddle off into the sunset at a pre-determined time?

You shouldn’t. And, believe it or not, the government actually offers a few incentives for you not to do so. They would love you to slowly ease out of the workforce over a five- or 10-year period.

Not only do they keep valuable people in the workforce, but they save on paying out government age pensions (if you’re earning enough).

Sadly, not enough people know about the rules that make staying in the workforce financially rewarding – outside of the income that you’re continuing to earn.

Rule changes in 2005 provided the perfect financial incentive for Australians to start easing out of the workforce from their late 50s.

They are what are most commonly called the “transition to retirement” (TTR) rules. And those who don’t know about them, and don’t make them work to their advantage, are, literally, donating money to the tax office on two levels.

The Howard Government introduced the TTR scheme in order to allow people to slowly remove themselves from the workforce.

Loosely, the TTR rules state that you may take between 4 and 10 per cent of your super fund as a pension, prior to retirement, while continuing to earn an income.

It was literally envisaged to allow people to shift from, say, five days a week, to four or three days, without having to take the cut to income that that would normally entail.

The idea was that you could access a pension from your super fund, while still working, and receive tax-incentivised income for doing so.

But then, in 2007, former Treasurer Peter Costello added a kicker that changed the ball game. Literally tipped the playing field to a 45 degree angle. And made it a near necessity for anyone over the age of 60 to be on a TTR pension.

If you are over 60 and drawing an income from your pension fund (a super fund becomes a pension fund when you turn on an income stream), the income you receive from that pension is now tax free.

If you could receive tax-free income from your super fund, without having to stop work, would you need to earn as much from your day job?

No. So you could reduce your hours, without necessarily reducing your income.

Further, it doesn’t have to come at the cost of running down your super. Why? Because you can still contribute to your super.

You can contribute up to $35,000 a year for the over 50s this year ($30,000 if you’re under 50, but I’m going to ignore you today, as you’re miles off being able to do a TTR).

Yes, add to a TTR the fact that you can salary sacrifice (paying 15% versus your marginal tax rate) and a TTR strategy is an almost certain win for those over 60 who are still working.

So, if you’re over 60, you can work less, earn a tax-free income from your pension fund and contribute more to your super fund.

An example? If you’re 60, earning $70,000 and have $200,000 in super, the following could be something you should probably seek advice about, whether or not you want to continue working.

Turn on a tax-free pension, taking $4000 to $20,000 (4-10%) from your pension fund, recontributing up to $35,000 to super, paying 15% instead of 34%. (See a financial adviser to help you work out the numbers best for you in your situation.)

Win. Win. WIN!

If you’re not doing that, you’re almost certainly paying more tax than you need to.

And, importantly, if you want to contribute to super after the age of 65, the only way you can do that is to continue to work. If you’re over 65 and don’t meet the “work test” (working 40 hours in a 30 days period), then you can’t continue to contribute to super.

A State Super Financial Services survey released recently said about 42% (of public sector workers) wanted to continue working beyond their retirement date.

If it makes you happy, if it makes you enjoy life a little more, if you enjoy the friendships AND there are financial incentives, why would you give us something you love, or ride off into the sunset if you weren’t quite ready to?


The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is director of Castellan Financial Consulting and the author of Debt Man Walking. E: