As Australians approach retirement, one of the most effective strategies available to ease the shift from full-time work to retirement is the Transition to Retirement Income Stream (TRIS). This strategy allows individuals to access their superannuation while continuing to work part-time or full-time, providing financial flexibility during the transition phase. In this blog post, we’ll explain what a TRIS is, how it works, the key benefits, and considerations for anyone thinking about using this strategy as part of their retirement planning.
What is a Transition to Retirement Income Stream (TRIS)?
A Transition to Retirement Income Stream (TRIS) allows individuals who have reached their preservation age (Age 60) to start accessing their superannuation benefits while still working. The TRIS lets you receive regular income from your super fund, which can supplement your salary or allow you to reduce your working hours as you move towards retirement.
This income stream is set up through your existing superannuation account and is paid out as a series of regular pension payments. The idea behind TRIS is to provide a financial cushion during the final years of work, either to replace lost income if you reduce your hours or to supplement your income if you continue working full-time.
How TRIS Works
Here’s how the TRIS strategy typically works:
- Eligibility: You must have reached your preservation age (Age 60) to be eligible to commence a TRIS.
- Part-Time or Full-Time Work: A TRIS allows you to continue working either part-time or full-time while drawing an income stream from your superannuation. You don’t need to be retired to access these funds.
- Limits on Withdrawals: TRIS comes with limits on how much you can withdraw from your super each year. You can withdraw between 4% and 10% of your superannuation balance each financial year while your TRIS is in place.
- Investment Growth: While drawing income from a TRIS, your remaining super balance continues to be invested and can grow over time. However, earnings on your TRIS balance are taxed at 15% until you fully retire and meet a condition of release.
- Taxation: Funds drawn from a taxable superannuation fund after age 60, are received tax-free.
Key Benefits of Transition to Retirement Income Streams
- Flexibility to Reduce Work Hours
- One of the biggest advantages of TRIS is the flexibility it offers. It allows you to reduce your working hours as you approach retirement while supplementing your income with pension payments. This can make the transition from full-time work to retirement smoother and less financially stressful.
- Tax Efficiency
- Once you reach age 60, TRIS payments become tax-free.
- Boost Retirement Savings with Salary Sacrificing
- A TRIS can be combined with a salary sacrifice strategy. By salary sacrificing part of your pre-tax income into superannuation, you can potentially reduce your overall tax bill. At the same time, you can replace the salary you’ve sacrificed with TRIS income to maintain your take-home pay.
- Continued Super Growth
- Even while receiving TRIS payments, the remaining balance of your superannuation continues to grow through investment earnings. This means your superannuation can keep compounding over time, potentially increasing the amount available when you fully retire.
TRIS Limitations and Considerations
- Caps on Withdrawals
- TRIS has strict limits on how much you can withdraw annually. You can withdraw no more than 10% of your account balance per financial year. This is important to note if you need significant income, as you may be restricted in accessing larger amounts from your super.
- Impact on Long-Term Retirement Savings
- Drawing down from your superannuation before full retirement may reduce your overall super balance, which could affect your long-term retirement income. It’s important to ensure that the income you take now doesn’t undermine your future financial security.
Is a TRIS Right for You?
A TRIS can be an effective strategy for certain individuals, particularly those looking to reduce their working hours while maintaining a comfortable level of income. However, it’s important to assess your long-term financial goals and ensure that using a TRIS won’t reduce your retirement nest egg too quickly.
Consulting with a financial advisor can help you determine whether a TRIS is the right strategy for your financial situation and ensure you get the most out of your superannuation.
Contact us today for advice on how a TRIS could benefit your retirement plan and to explore other strategies that may help you achieve your financial goals as you transition into the next stage of life.
