Transition to retirement strategy
Do you want to save more and work less?
A transition to retirement strategy can help you make the most of your superannuation in the years before retirement.
You’ve worked hard to accumulate it, so now make it work for you!
“A transition to retirement strategy can provide income flexibility while keeping your long-term retirement goals on track.”
How transition to retirement works
As you near retirement, you can use a transition to retirement (TtR) strategy to work fewer hours, but still take home the same pay, by accessing your super early.
Alternatively, a TtR could enable you to keep working full time, boost your super and save on tax.
But to start with, you must have reached preservation age to access TtR options, so here’s a handy table to see if that’s you.
| Year of Birth | You can access your super at age… |
| Before 1 July 1960 | 55 |
| 1 July 1960 – June 30 1961 | 56 |
| 1 July 1960 – June 30 1962 | 57 |
| 1 July 1962 – June 30 1963 | 58 |
| 1 July 1963 – June 30 1964 | 59 |
| 1 July 1964 or after | 60 |
TtR strategies can be complex, and professional advice is a necessity, but we have outlined some key features below.
Reduce work hours - start to slow down
If you’ve reached preservation age and you’d like to lessen your workload as you move towards retirement, you can transfer some of your super to an account-based pension and draw upon it as you work fewer hours.
When you open this TtR income account, your super then works to top up your take-home pay… so you can work less, but still enjoy the same income.
EXAMPLE
Ben is 60yo and earns $50,000 a year before tax. He wants to ease into retirement by dropping his working hours to three days a week, reducing his income to $30,000.
Ben chooses to transfer $155,000 of his super to a transition to retirement pension account and withdraw $9000 each year, tax-free, to top up his pay.
Boost your super
If you’ve reached preservation age but you don’t want to reduce your working hours just yet, you can continue to grow your super while saving on tax.
You can do this in two ways:
- By salary sacrificing through your employer, or
- By making after-tax super contributions and claiming a tax deduction.
You can also supplement your pay packet with regular payments from your TtR income account and reap the benefits of:
- Paying less tax, if you are aged over 60, and
- Supercharging your savings before retirement.
EXAMPLE
Lucy is 60yo and earns $100,000 a year. She would like to keep working full-time for a few years. Lucy transfers $200,000 from her super to an account-based pension so she can start to TtR. She salary sacrifices into her super as she keeps working full time, reducing her income tax but also her take-home pay, which she tops up with a 10% withdrawal from her TtR pension account each year.
“Used correctly, a transition to retirement strategy balances lifestyle needs today with financial security tomorrow.”
Things to consider
The type of TtR strategy that is right for you will depend upon:
- The type of superannuation you have – keeping in mind the fees you pay on your accumulation accounts and any TtR accounts you open
- The flexibility of your employment, and whether or not reducing your hours and maintaining your position is possible
- Your insurances, and how opening a TtR account may impact the cover available to you and your loved ones
- Your employee entitlements when it comes to salary sacrificing
- Your personal situation and how this can impact your working hours or after-tax superannuation contributions.
Help and advice
It can be tricky to figure out which transition to retirement strategy best suits your needs, but we are here to help.
Our qualified accountants have decades of experience partnering with individuals and businesses to help you today, and into the future.
If you’d like to find out more about our retirement planning services, please contact us.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
Flexibility Is the Key Benefit
A TTR strategy allows you to ease into retirement by supplementing income while remaining in the workforce.
Eligibility Rules Apply
You must meet preservation age and superannuation requirements before starting a TTR income stream.
Tax Outcomes Vary by Situation
TTR strategies can be tax-effective in some cases, but results depend on income, age and contribution strategies.
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Frequently Asked Questions
What is a transition to retirement (TTR) strategy?
A TTR strategy allows eligible individuals to access part of their superannuation while still working, usually by starting a transition to retirement income stream.
Who is eligible for a transition to retirement strategy?
You generally need to have reached your preservation age and meet the relevant superannuation rules to commence a TTR income stream.
How can a TTR strategy be used?
A TTR can supplement income if you reduce working hours or be combined with salary sacrifice to improve tax efficiency while continuing to build super.
Are there tax benefits with a transition to retirement strategy?
Depending on your circumstances, a TTR may provide tax advantages, but the benefits vary and have changed over time, making advice important.
Is a TTR strategy suitable for everyone nearing retirement?
No. A TTR strategy depends on income level, super balance, cash flow needs and retirement timing, so it should be assessed individually.
Can I keep growing my super while using a transition to retirement pension?
Yes. Many people continue working and making concessional contributions while drawing a TTR income stream, depending on their circumstances and the current rules.
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