Transition to retirement

A ‘transition to retirement’ (TTR) strategy lets you access some of your super and keep working.

Setting this up can be complicated, so contact your super fund or financial adviser for advice.

How transition to retirement works

If you’ve reached your preservation ageĀ (between 55 and 60) and still working, you can use a TTR strategy to:

  • supplement your income if you reduce your work hours, or

  • boost your super and save on tax while you keep working full time

Starting a TTR pension

You can start a TTR pension by transferring some of your super to anĀ account-based pension.

You need to keep some money in your super account to continue to receive your employerā€™s compulsory contributions. Or any voluntary contributions you make.

Government benefits and TTR

Starting a TTR pension may impact your or your partner’s government benefits. Speak to a Services AustraliaĀ Financial Information Service (FIS)Ā officer for more information.

Life insurance and TTR

You may have life insurance with your super. Check if your cover reduces or stops if you start a TTR pension.

Using TTR to reduce work hours

If you want to reduce your work hours, a TTR strategy can top up your income.

Pros

  • Continue to receive super contributionsĀ ā€” This helps to replace the money you take out.

  • Pay less taxĀ ā€” If you are 60 or older, your TTR pension payments are tax free. If you are 55 to 59, your pension is taxed at your marginal tax rate, but you get a 15% tax offset.

  • Ease into retirementĀ ā€” You can start planning what you’ll do with your leisure time before you retire completely.

Cons

  • Affects retirement incomeĀ ā€” If you start drawing down your super early, you’ll have less money when you retire.

CASE STUDYĀ 

Alisha reduces her work hours

Alisha has just turned 60 and currently earns $50,000 a year before tax. She decides to ease into retirement by reducing her work to three days a week. This means her income will drop to $30,000. Alisha transfers $155,000 of her super to a transition to retirement pension and withdraws $9,000 each year, tax-free. This replaces some of her lost pay.

Using TTR to save on tax

You can use a TTR pension to grow your super and pay less tax in the lead up to retirement.

This strategy works best if you are 60 or older and a mid to upper income earner.

Pros

  • Boost your superĀ ā€” A TTR pension can be used with salary sacrificing to top up your super as you approach retirement.

  • Save taxĀ ā€” You pay 15% tax on salary sacrificed contributions. This is likely to be lower than your marginal tax rate.

  • Pay less tax on incomeĀ ā€” If you are age 60 or older, your TTR pension payments are tax free. If you are 55 to 59 you are taxed at your marginal tax rate, but you get a 15% tax offset.

Cons

  • ComplexityĀ ā€” You may need to pay for financial advice to understand if this strategy is for you.

CASE STUDY

Kyle reduces his tax

Kyle is 60 and earns $100,000 a year. He intends to keep working full-time for at least another five years. Kyle transfers $200,000 from his super to an account-based pension so he can start a TTR strategy.

He salary sacrifices into his super. This will reduce his income tax, but also his take-home pay. He tops up his income by withdrawing up to 10% of his TTR pension balance each year.

Plan your retirement

You may benefit from combining a mix of income options when you retire.

Financial decisions at retirement

How to make the most of your retirement income.

Download PDF

Contact us today on 02 9554 3566 if you’d like to implement a strategy for your retirement.

Source:
Reproduced with the permission of ASICā€™s MoneySmart Team. This article was originally published atĀ https://moneysmart.gov.au/retirement-income/transition-to-retirement

Important note: This provides general information and hasnā€™t taken your circumstances into account.Ā  Itā€™s important to consider your particular circumstances before deciding whatā€™s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete.Ā You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.Ā  Past performance is not a reliable guide to future returns.

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