Retirement doesn’t always mean the end of work. In Australia, more retirees are finding reasons to return to work even after accessing their super.
However, with certain superannuation rules, tax implications, and other factors to consider, is it really that simple to go back to work after retirement?
Let’s break down everything you need to know before you make that decision.
Can You Return to Work After Retiring?
In Australia, there are no restrictions preventing you from returning to work after retirement. However, specific rules dictate how and when you can access your superannuation in retirement.
Understanding these rules can be complex, so here’s a breakdown of common scenarios you might face.
Returning to Work: Age 65 or Over
If you retire and return to work from age 65 onwards, or continue in your current role, it does not affect your ability to access your superannuation or any previous withdrawals you have made from it.
Once you reach age 65, you can access your entire superannuation balance without restriction. At this stage, you can choose to convert your superannuation into an income stream, such as an account-based pension, or make lump sum withdrawals, or both.
It’s important to note that converting your superannuation into an income stream means the balance will be assessed for Centrelink purposes, which could impact any entitlements you receive.
Returning to Work: Age 60 to 65
If you are aged between 60 and 65, you can return to work after retiring, but there are limitations on how much superannuation you can access.
There are three potential scenarios:
1. Retired with no intention of ever returning to work
If you retired after reaching your superannuation preservation age and at the time had no intention of returning to work ever again, you will have had full access to your super from that point.
You are still able to return to work and retain access to that portion of your super, provided your intention at the time was to never to return to work.
There is no specific time frame before you can return to work, just that intentions must have been genuine.
If you do choose to return to work, any subsequent contributions will not be accessible and you retire again, or attain age 65.
2. Ceasing an employment arrangement after attaining age 60
If you have an employment arrangement come to an end after reaching age 60, your superannuation becomes fully accessible.
For instance, if you finished working with one employer on a Friday and then began working with another on a Monday, you would have complete access to your super, even after starting the new job.
However, any super contributions made by your new employer, or personal contributions made after commencing your new job, will be locked up until you retire again or reach age 65.
3. Continuing to work between age 60 and 65
If you continue to work with the same company, or haven’t ended an employment arrangement after reaching 60, you will still have access to your super, but the access is limited to a transition to retirement pension.
This allows you to receive an income of between 4% and 10% of the pension balance each year. Lump sum withdrawals are not available.
In each case, whether you retire with no intention of returning or cease an employment arrangement after age 60, you should notify your superannuation fund at the time of these changes.
When it comes to accessing superannuation, there is often confusion around whether you can retire, access your super, and then return to work with the same company.
Can You Retire and Return to Work with the Same Company?
As mentioned earlier, one definition of retirement for superannuation purposes is ceasing an employment arrangement after reaching age 60. Doing so allows you full access to your superannuation.
A common question is whether you can resign from your job, access your super by qualifying as retired, and then return to work with the same company in a different role or capacity.
Typically, this does not meet the retirement definition of ending an employment condition after age 60. The reason is because an employment arrangement needs to come to an end, and the definition of arrangement extends to an expectation that a position will remain available to you within the company. Therefore, if that expectation exists, an arrangement has not ended.
However, returning to the same employer isn’t entirely excluded under the retirement rule. If you can demonstrate that your resignation was truly final at the time, with no plans of returning to the same employer, but later you are presented with an unforeseen opportunity at the company, then it’s possible you meet the retirement definition.
What about the conditions for accessing your super at 60 while continuing to work. Is this possible?
Can You Take Out Your Super at 60 and Still Work?
There are two ways that you can take your super out at 60 and still work.
Firstly, if you have attained age 60 and are still working within the same role, uninterrupted, then you are eligible to use your superannuation accumulation balance to commence a transition to retirement pension.
A transition to retirement (TTR) pension allows you to receive income from your superannuation of between 4% and 10% of your account balance each financial year. No other criteria other than being at least age 60 needs to be met to start a TTR pension.
The second way you can take out your super at 60 and still work is by having an employment arrangement come to an end after attaining age 60. This scenario allows for broader access to your super, enabling you to start an account-based pension or make unlimited lump sum withdrawals.
An account-based pension is similar to a TTR pension, but better, because there is no upper-limit on the income you can receive and the investment earnings within the account are received completely tax-free, compared to being taxed at up to 15% in a TTR pension.
If you want to know more about you options regarding super, read this article on superannuation and retirement.
Another point of confusion is the number of hours you can work after retirement.
How Many Hours Can You Work After Retirement in Australia?
If you have satisfied the definition of retirement for superannuation purposes, there may be rules around the hours you are permitted to work.
These rules can be defined in four instances:
- TTR Pension 60-64: If you are accessing your super via a TTR pension from age 60, there is no restriction on the number of hours you can work.
- Permanently Retired 60-64: If you are accessing your super because you are retired with no intention of ever returning to part-time or full-time work ever again, then you cannot work 10 hours or more in any given week. However, if your intentions change, there is nothing stopping you from returning to full-time work, provided your intentions at the time were genuine. There is no specific timeframe that needs to be served between your intentions changing.
- Ceased an Employment Arrangement 60-64: If you are accessing your super because you had an employment arrangement come to an end after reaching age 60, then you can access the super you have accumulated up until that point, but are not restricted with the number of hours you can work in your new role.
- Age 65+: If you are accessing your superannuation because you are 65 or older, there is no limit on the number of hours you are permitted to work.
Now that you understand when and how much of your super you can access, as well as the work hours permitted after retirement, let’s explore the tax implications of returning to work after retirement.
What are the Tax Implications of Returning to Work After Retirement?
Each financial year, all of your assessable personal income is taxed at your individual tax rate. Generally, all superannuation pension income from age 60 onwards is tax free, even if you are working.
If you’re not working, your taxable income will typically come from personal investments and possibly Age Pension payments. However, when you return to work after retirement, your work-related income will become taxable again, but it will not affect the tax-free status of your superannuation pension income (unless you have a taxable defined benefit pension).
Keep in mind that returning to work could increase your overall taxable income, particularly if you receive Age Pension payments, as it may push you into a higher tax bracket.
Despite work-related income still being taxable, there are some benefits of working past retirement age.
What Are the Benefits of Working Past Retirement Age?
The benefits of working past your retirement age include:
- Funds last longer – By working longer you are reducing the amount of your superannuation and investments that need to assist in covering your retirement expenses. Not only are you not drawing down on your funds, but you are also presumably increasing your super through contributions, ensuring your funds will last longer.
- Tax-effective strategies – Combining work related income with minimal superannuation drawdowns can allow you to accumulate wealth tax effectively, through a combination of deductible super contributions and tax-free retirement income.
- Transition into retirement – If you are uncertain as to whether you would like to retire or not; or if you simply want to reduce to a part-time workload, working past your retirement age allows you to supplement your reduced employment income with superannuation drawdowns.
- Stay engaged – working past retirement allows you to stay engaged in the workforce, which can have social, mental and physical health benefits.
Another advantage is the Centrelink Work Bonus, which can help minimise the impact on your social security benefits if you choose to continue working after retirement.
What is the Centrelink Work Bonus?
The Centrelink Work Bonus allows Age Pension recipients to earn up to $300 per fortnight, per person, without this amount counting towards the Centrelink Income Test when assessing your Age Pension eligibility and entitlements.
Any unused portion of the Work Bonus on any given fortnight will accrue up to a maximum of $11,800 that can be exempt from assessment in the future.
The Work Bonus may be a deciding factor in whether or not you decide to work past your retirement age.
There are several things to consider when returning to work after retirement or deciding whether or not to continue working past retirement. Structuring your lifestyle desires with your retirement objectives and financial situation can be a fine art.
This is where we can help.
At Toro Wealth, we specialise solely in retirement planning advice. Our aim is to give you confidence around when you can retire, the retirement income you can achieve and how to optimise your financial position in the lead-up to retirement. If you’re interested in learning more about our service and cost, click here.
