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Ease into retirementPosted by Randy on: 2005-10-03 07:29:55 in category:
Retirement Headlines [ Print | Permalink / 0 Comment(s) ] Ease into retirement THE days when we worked full-time one day and retired the next are becoming a thing of the past. And under rules that came into force on July 1, many pre-retirees will now find it financially easier to make a gradual transition to retirement. Before then, the only way you could access your super was to retire permanently from the workforce. Trouble was, not everyone wants to retire when they reach “preservation age” (55 if you were born before July, 1960, and between 55 and 60 if you were born after). For many of our over-55s, this restriction meant either slogging away at a full-time job, or hanging up their work boots before they really wanted to. But thats all changed. Under these new rules, anyone reaching preservation age can access their super while still holding down a job. The only catch is you wont be able to take a lump sum the money must come in the form of a private pension, known as a transition to retirement pension or TRAP. This latest fine-tuning of our super system is part of the Governments broader plan to encourage us to work for longer and rely less on the age pension. The idea wont appeal to everyone but for pre-retirees who are keen to wind down their working days, TRAPs could be the thing that lets them work part-time and still pay the bills. There are pros and cons of TRAPs though. Accessing your super before you fully retire calls for serious consideration. With a life expectancy of 77 years for men and 83 years for women, your nest egg will need to last a long time, and eating into the funds early on could have a significant impact. It also pays to look closely at the fees youll pay to the pension provider because over the long term. These can have a big impact on the capital invested in the pension. The trade off for accessing your super while still working is that the pension is non-commutable (in other words it cannot be cashed out as a lump sum) until you reach age 65, or fully retire. This reflects the intended use of TRAPs as an income supplement. On the plus side, using a TRAP may mean extending your working days beyond pension age. This could make you eligible for Centrelinks pension bonus scheme, which provides financial rewards for people who defer claiming the pension. In addition to letting the over-55s spend less time in the workforce while supplementing a reduced income, TRAPs can also be used to give your nest egg a boost. If you continue working full-time it may be possible to receive the income from a TRAP while salary sacrificing part of your working income to make tax-effective contributions to your super. Using a TRAP to ease yourself into retirement can be a good idea and it gives pre-retirees more options than they previously had. But bear in mind that cutting back your working week is likely to reduce your employer sponsored super contributions as well as other valuable employee entitlements like holiday pay and sick leave. lPaul Clitheroe is a founding director of financial planning firm ipac, host of Channel Nines Money reports and chief commentator for Money magazine. Homepage Other open community sites http://www.business-business.biz Please support are sponsors. To design you custom retirement plan. http://www.retirement-plan.us For planning a IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management: National ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
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