I am 61 and looking to retire in the next 5 years, but I have recently heard the term 'Transition to Retirement' and am wondering what this means and what sort of things I should be doing?
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At 5 years out from retirement you are certainly getting to the pointy end and so a good time to ensure you are maximising your opportunities to build up your retirement nest egg. The Transition to Retirement provisions were originally introduced to allow people close to retirement to move to part time work prior to full retirement. The idea was that someone in this phase could draw some income from their superannuation to replace the lost wages. The strategy continues to be effective for this purpose.
The Transition to Retirement provisions gained in popularity however due to a strategy whereby a future retiree would in fact not reduce their work at all, but draw income from their super and then salary sacrifice wages so as to reduce their personal tax and potentially boost their retirement savings. Unfortunately for you, there are rule changes which come into effect from 1 July 2017 which greatly reduce the effectiveness of this strategy, though there may continue to be some people for whom it delivers a benefit.
At this point in your working life there are several things you should be looking at – the potential to salary sacrifice into super, after-tax contributions, your investment mix, and ensuring you are getting value for money for the fees that you are paying. I would also want to do some modelling as to how your retirement funding looks over the long term. Any investment entails risk, and especially at retirement, you don’t want to be taking risk unnecessarily. There is no point taking the risk required to earn 8% if your objectives can be meet by earning only 4%. On the flip side, I sometimes have clients whose investment preference is to invest in a very low risk fashion, however when we run longer term projections, the consequence might be their savings running out in their early to mid 70’s – an unacceptable outcome.
I hope this helps. I would strongly encourage you to sit down with a well-qualified financial planner and discuss the specifics of your circumstances.
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