What is a transition to retirement strategy and how does it work?

A transition to retirement strategy lets you access some super and keep working.

What is a transition to retirement strategy and how does it work?

As you approach retirement, you may want to start working less. This can be due to motivation or a physical inability to continue working at the same level.

Not everyone is financially secure enough to just stop working cold turkey before they reach pension age, but there is a way to access some of your super, while you continue to work; this is known as the transition to retirement (TTR).

TTR works by opening a retirement income account (an account-based pension), using a portion of your super balance, alongside your regular super account. These two accounts work together and may reduce the overall tax you pay while helping grow your super savings.

You need to keep some money in your regular superannuation account so that you can continue to receive your employer’s compulsory contributions or any voluntary contributions that you make.

To take advantage of this strategy you must have reached preservation age, which is the age that you are entitled to access your superannuation.

If you're aged 55 to 60 and still working, you can use a TTR strategy to continue to salary sacrifice into superannuation, which means your super balance continues to grow while you may be able to reduce the amount of tax paid.

If your employer allows salary sacrifice, you could divert some of your salary into your superannuation and use payments from your income account to replace any reduced take-home pay, so you can still maintain your lifestyle.

If you are 60 or older, your TTR pension payments are tax free. If you are 55–59, your pension is taxed at the marginal rate, but you get a 15 per cent tax offset.

One of the drawbacks of this strategy is if you start drawing down your super early it means that you will have less money when you actually retire.

Case study
Pam has just turned 60 and currently earns $60,000 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 $36,000.

Pam transfers $180,000 of her super to a transition to retirement pension and withdraws $12,000 each year, tax free. This replaces some of her lost pay.

Save on tax
According to moneysmart.gov.au, you can also use TTR to save on tax in the lead-up to retirement, although the strategy works best if you are 60 or older and a mid to upper income earner.

If you do use this strategy it is best to pay for financial advice to understand if this strategy will work in your situation.

Have you considered a TTR strategy? Have you spoken to a financial adviser?

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    Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.


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    Peter H
    23rd Oct 2020
    Only a benefit of you are working. Too many are not working when they become eligible for transition to retirement.
    23rd Oct 2020
    I suspect that you can only access super for TTR if you are 58 or older now, not 55, 56 or 57.
    23rd Oct 2020
    You pay tax on it if you’re under 60.
    Life experience
    23rd Oct 2020
    But with the new tax schedules. If your in a low income you pay 15% on super and 19% on pay. So hardly worth it if under 60 ?
    23rd Oct 2020
    If you’re under 60, anything you withdraw from super is added to all your other income (wages, investment income, bank interest, etc.) and you pay tax on the total at the appropriate level.

    If you’re 60+ the money you withdraw from super is not added to your other income for income tax purposes. It isn’t declared on your tax return. So, for most people, it’s best not to touch super until you’re at least 60 unless you have to.

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