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What is a Transition to Retirement Pension (TTRP)?

A TTRP is an income stream that can be accessed before retirement. Generally, an individual can only access their superannuation benefits when the following conditions are met:

1. The individual has reached preservation age (55 or over)
2. The individual is retired, or is over age 65.

With the TTR pension, an individual does not need to be retired to access the benefits offered by a retirement income stream. Importantly, once the second condition is met (being retired), the income stream automatically reverts to a normal allocated pension. A feature common to both allocated pensions and TTR pension is that no tax is charged on earnings.

The main benefits of implementing a TTR strategy are:

1. Earnings tax paid inside of superannuation can be eliminated by rolling funds to a TTRP. This effectively adds 15% to the performance of your retirement savings each year.

2. Tax friendly income derived from the TTRP will allow you to salary sacrifice more into superannuation than you need to take out. Income derived from a TTRP is generally more tax effective then income received from working, especially after age 650. This can open up an ‘arbitrage situation’ where the amount needed to draw from the pension is much less than the amount needed to replace it via salary sacrifice.

3. The TTR strategy can result in lower taxable and assessable income. This can enhance the ability to qualify for tax offsets such as Mature Age Tax Offset (MATO) and Low Income Tax Offset (LITO). It may also increase your eligibility for the government’s co-contribution scheme.

Advantages of implementing a TTR Stragegy

1. No tax on earnings or growth within the TR Pension.
2. Access to the 15% pension tax offset between ages 55 and 59 and tax-free income from age 60.
3. The strategy can be completely unwound (i.e. funds rolled back to superannuation) without any negative implications on the retirement balance.
4. The level of income received can be adjusted between minimum and maximum levels.
5. This is a tax structure driven strategy. This means it is not reliant on strong market performances to make it a successful strategy.

Disadvantages of implementing a TTR Strategy

1. If the income drawdown from the TTRP is not replaced, the final retirement balance may be less.
2. Income from the TTR Pension may be received at different times to your current salary or self-employed income.
3. There may be transaction costs involved in establishing the strategy.
4. The amount contributed back to superannuation is limited by the Concessional Contribution Cap (CCC) amount.

Upon retirement, superannuation fund and Transition to Retirement Pension consolidate into standard Account Based Pension (no maximum limit on annual amount

Share Trading

There is some excellent information on the share market and trading shares on the Share Market College website.

Successful share trading starts with you, your skills, your attitude, your know how and your ability to spot opportunities.

If you're looking for some great advice I recommend the Share Market College site.... Read more.

Superannuation

Superannuation and Borrowing summary

Bank funded borrowing arrangements

1. The superannuation law contains a general prohibition against super funds borrowing. This general provision was modified in September 2007 to allow super funds to borrow under certain circumstances.
2. Whilst the exemption comes under the heading ‘Instalment Warrants’, the rules themselves have much broader application. In essence, provided the arrangements meet five criteria, a super fund will be entitled to borrow. Those criteria are:

(a) The money borrowed is applied to acquire an asset, other than an asset which the fund trustee would otherwise be prohibited from acquiring;

(b) The asset is held on trust so that the fund trustee only has a beneficial interest in the asset;

(c) The fund trustee has a right to acquire legal ownership of the original asset by making one or more payments after acquiring the beneficial interest; and

(d) The asset held in the trust must be the only asset held by that trust.

3. It is relevant to note that the arrangements will not permit a super fund to acquire an asset that it could not otherwise acquire. For example it could not acquire a residence or holiday property to be used by a member as this would breach the sole purpose test. It could not acquire an asset from a member or a relative of a member unless the asset was business real property or listed shares, as these acquisitions are otherwise prohibited.

4. Additionally, an aspect of the new borrowing laws is that the legal title of the asset must be held in trust. Funder & Associates can assist clients in establishing these trusts, under what we call Super Borrowing Instalment Trusts (SBI Trusts). The trust must be in place before the contract to purchase the asset is signed, or you can end up paying extra costs such as double duty.

5. Further, there is no prohibition against others providing security, whether over assets outside of the super fund or by way of personal guarantees. Accordingly, a member of the super fund could allow security to be given over their own personal assets, or give personal guarantees if the Loan to Value Ratio (LVR) otherwise became an issue.

6. Other assets of the super fund can not be used as security.

7. As discussed, the limited recourse funding arrangements with financiers that can be structured are illustrated by the two examples below.

Bank funding - limited recourse secured over property and other personal assets

8. In this example, the member of the super fund offers their personal assets or acts as a guarantor to provide additional security to the bank to secure the borrowing by the super fund.

Past e newletter posts

Success - What is it?

Working at a job you enjoy instead of one you hate.

Owning your own home so you are not at the mercy of a landlord who may force you to move out.

Having the financial freedom to travel and experience the wonders of our unique world.

Having fulfilling and happy personal relationships instead of living in conflict.

Freedom to choose. It’s a great feeling to go to a shop and choose on the basis of what you want rather than what you can afford.
Feeling good about yourself.

Having a well-rounded life so you enjoy a range of activities.

- Find your own definition of “success’ but, generally, successful people are the ones who have taken control of their life and are living it on their terms.
- To move forward, you must be prepared to give up less important things to reach a more important goal.

Most people waste at least 20 hours a week watching television or playing video games, and they never read books or take courses that will improve their mind. They also can’t wait to finish their work at the end of the day, can’t wait for Friday to come, never set goals, and spend their whole lives wishing they could win the lottery so they would never have to work again.

- If most people are doing it wrong, then doing what they do could put you on the wrong track too.
- Our rewards in life will match our service.
- You can either lead the group in the direction you want to travel or change your circle of friends to one with goals and dreams like yours.
- It takes more effort to climb the mountain than to slip down it. Usually the worst course of action is the easiest.
- A mastermind group delivers extra power to help you achieve your goals.

Success depends on a chain reaction that you may well have already started. You take an action that leads to a further action, and then to another action, and finally you get a result that until now you may never have dreamed was possible. There is one catch: the process often takes a long time to work, which is why many who start don’t stick with it.

Now, let’s get down to work. In simple terms, the rules of achievement can be summarised as follows:

1. You must believe you have the ability.
2. You will have to clearly understand that you must make the effort before you enjoy the results.
3. You must set clearly defined goals.
4. You must increase your value as a person through continual self-development.
5. You must have persistence and learn from your failures.
6. You must maintain a positive mental attitude.
7. You must take full responsibility for you successes and failures.

- Feed your mind and develop your skills.
- Believe in yourself and your own ability.
- Winners can spend most of each day doing what they choose to do.
- Set clearly defined goals so you know where you’re heading.
- Understand the value of persistence - everything of value takes time.
- The only real failure is failing to try. Failure is an integral part of success.
- You can have the most wonderful life if you decide to do what is necessary to achieve it.

How do you genuinely see yourself? Ask a room full of teenagers, or even adults, and you’ll probably hear a stack of self-derogatory comments. Words like “average” or “not much”. Many will even take it a step further and use terms like “too skinny”, “too dumb”, “too tall”, “too clumsy”. There seems to be a feeling in our society that it’s wrong to think good things about ourselves. There is also a custom that you show hidden admiration for your friends by saying something nasty about them - to their faces of course.

- We develop our self-concept mainly by what we tell ourselves, by what others say to us and from situations we observe and take part in.
- You cannot change what has passed and you are wasting time by dwelling on it.
- Never again say anything negative about yourself.
- Nothing will improve your own self-concept like helping that of others.
- Every small success you can notch up will give you the strength to go for a larger one.
- Read as many autobiographies as you can so you can share the thoughts of achievers.

Why Only 8% Make it Financially

Let’s consider 100 teenagers aged 15 and think about where they will be in 50 years, when they are all aged 65:

On present statistics:
38 will be dead
62 will be alive

Of those 62 who are alive:
38 will be dead broke
16 will still be working
7 will be retired on a liveable income
1 will be wealthy
Of those 100 people, only 8% will reach financial independence.

What Made the Difference?

One thing the 8% do possess is a willingness to learn. Nobody knows how to create that desire to learn but it’s central to the whole success story. If you are simply not interested in learning about financial matters there is nothing that I, nor anybody else, can do to help.

The First Drawback - Lack of Knowledge

The Second Drawback - Lack of Foresight

The Third Drawback - The “Must-Have-It-Now” Mentality

The Fourth Drawback - Borrowing for Things That Lose Value

The Fifth Drawback - No Goals and No Plan

The Sixth Drawback - Confusing Good Income with Financial Independence

The Seventh Drawback - Bad Mental Attitude

Some classic examples I have heard are:

“I would never own a rental house because I have heard that tenants wreck them”

FACT: Certainly a small proportion of rental houses get damaged - the majority suffer no more than normal wear and tear.

“I would never buy shares, they are too risky”

FACT: While there is a degree of risk in some shares, the truth remains that shares have historically out-performed every other investment. To ignore shares is to deprive yourself of outstanding investment opportunities.

“I would never use superannuation because the government keeps changing the rules”

FACT: Almost all the rule changes have been positive if you are not using super you are paying too much tax.

Good Money Managers V Poor Money Managers

Now you know the difference between financial winners and financial losers. Let’s summarise those differences while you work out which category you are in.

Good Money Manager V Poor Money Manager will generally:

Saves something out of every pay

Minimises borrowing for items that depreciate

Has a definite goal

Works to individual plan

Mixes with successful money managers

Knows that budgeting is a must

Knows how to get professional advice

Keen to learn

Invests in items that gain value

Poor Money Managers v Good Money Managers will generally:

Must have it now and will borrow to get it
Spends all of each pay and sometimes more than that
No goals or plans
Blindly follows the crowd
Mixes with people with similar problems
Hopes next pay rise will solve all problems
Believes that they do not need advice
No interest in learning
Spends on items that lose value