transition to retirement

Thinking about retirement but not ready to stop working yet? A transition to retirement (TTR) strategy could be for you. 

Thinking about retirement but not ready to stop working yet?

Transition to retirement (TTR) is a strategy that allows people to continue working while drawing down some of their super once they've reached preservation age.

So how does it work? The strategy may provide an individual with the capacity to contribute more to their super, whilst drawing a regular pension (minimums and maximum amounts apply) to supplement any loss in take-home pay. Individuals in a higher tax bracket may see a significant tax saving.

  • Individuals generally draw a pension amount of between 4-10% of their previous financial year balance (or their starting balance if the pension commenced after 30 June) each financial year (the minimum amount is dependent on their age) but this amount may vary with Government adjustments in some years.
  • Pension amounts paid to those over 60 from taxed super funds are generally tax free but for those under 60, some tax may apply, with a tax offset potentially applicable too.

  • Once an individual meets a condition of release after preservation age (including reaching age 65), TTRs become account-based pensions. Account-based pensions benefit from a tax free earning environment. TTRs and account-based pensions cannot be added to and individuals should consider seeking personal advice tailored to their own goals and objectives when circumstances change.

A couple of reasons why individuals may seek advice on TTR strategies:

  1. Ease into retirement
    If an individual is thinking about cutting down their working hours, it might be possible to do this without reducing overall income using a TTR strategy. If eligible, a TTR pension may allow drawing of an income from super while working part-time, which means members could potentially maintain their lifestyle while working less. A downside may be that accessing super now can mean you have less when you retire.

  2. Boost your super without changing your lifestyle
    If a member is looking to maximise super, they may continue to work full-time while making additional superannuation contributions. They may then top up their reduced salary with a TTR pension. Additional contributions cannot be made to a pension account.  However, the income from a TTR may give an individual the capacity to make additional contributions to a superannuation benefit held within accumulation phase.  It’s important to note that caps and eligibility rules apply to pre and post-tax contributions. 

Things to consider:

  • Find out what your government entitlements are, as these may be affected by commencing a TTR pension.
  • Before deciding if a TTR strategy is right for you, speak to a financial planner. Seeking advice could help you understand the possible benefits and implications for your particular circumstances.