Is your TRAP door open?

1 Mar 2010

A transition to retirement allocated pension, or TRAP, is becoming a popular strategy for people contemplating a gradual exit from the workforce.  But don’t leave it until you’re knocking on the door of retirement before discovering you’re eligible to open the TRAP door. 

Opening ours

In reality, we’re all transitioning to retirement. It’s going to happen someday, whether we’re ready for it or not. A transition to retirement strategy is a clever way to get there, once you’ve reached what’s called your preservation age.

Your preservation age is not about how well you’ve looked after yourself to that point. It’s the age at which you’re eligible to retire - depending on your year of birth - and can therefore open the TRAP door. It does help to have looked after your super by the time you get there though!

When can you open the door?

What’s so good about TRAPs?

A TRAP is a strategy that converts your super balance into an allocated pension. It gives you tax-advantaged income and a lot more flexibility in the years before you actually stop working.

A TRAP lets you access your super and provides you with a regular income without having to retire, or reduce the number of hours you work. You can use income from your current employment and your retirement income from your super.

There are significant financial benefits and greater flexibility because you can:

• Boost your income - by receiving a retirement income stream from an allocated pension, as well as your normal salary 
• Boost your super - by continuing to work and sacrificing some of your salary to super 
• Reduce your hours or change job responsibilities - without reducing your income

You can use a combination of these options.  And, if your situation changes, you can roll funds from your TRAP back into super – because it’s a revolving door too.

Where are you at?

If you’re 45+ and at your peak earning capacity, it's a good time to look at how much - and how - you’re contributing to your super. A healthy balance should be your goal by the time you reach your preservation age. 

If you’re 50+ there’s still time to give your super a boost in the lead up to your preservation age – which is 55. This might mean selling an asset and contributing proceeds to your super, for example. But you need to act now, so talk to an adviser.

If you’re 55+ the TRAP door is open right now. Talk to an adviser about your current situation and future goals and see how this strategy could work for you.

If you’re 60+ the door hasn’t closed for you. The good news is that because you’re over 60 your regular TRAP income is now tax-free.

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