How to transition to retirement

It’s just as important to commit to lifestyle changes as it is to managing your future income.

How to transition to retirement

Richard Shermon explains that in transitioning to retirement, it’s just as important to commit to lifestyle changes as it is to managing your future income.

The transitioning-to-retirement approach offers a measured and step-by-step process, both emotionally and financially, helping you to enter your next, crucial life stage with less stress.

These simple questions will help you to test your readiness to retire:

  • Have I achieved my goals in the workplace?
  • Do I have other employment avenues I wish to explore?
  • Am I ready to have more time on my hands?
  • How long do I need my retirement funding to last?
  • Do I have contingency plans should my money run out?
  • What type of retirement am I hoping to achieve?
  • Have I shared my plans with my significant others?
  • Am I organised enough for a lifetime of Saturdays?

So, if you’re satisfied that you’re ready to progress with a transition-to-retirement (TTR) strategy, then here are the details you need to know.

What exactly is a TTR pension?

The TTR pension involves using part, or all of your accumulated superannuation fund, to start a pension. This pension, known as an income stream, can be started by people who have reached super preservation age – which is 55 for those born before 1 July 1960 – but must be funded from your existing superannuation money.

The annual income that’s drawn must be above a prescribed minimum level – which is currently four per cent of the fund balance – but less than 10 per cent of the fund balance for those under the age of 65.

What are the key advantages of starting a TTR pension?

The first major benefit is that you will start to receive a regular pension payment, which you can use to supplement your income. This may also open up a number of employment options. For example, the extra income could help you to reduce the number of hours you work, as a way to ease you towards full retirement in the years ahead. Alternatively, you could perhaps consider moving to a less stressful, possibly lower-paid job knowing you can still meet your monthly expenses.

You may have even considered starting your own small business. The additional pension income may help with this transition and provide you with some additional financial support until your new venture generates enough income to support your needs.

There are also several tax benefits associated with a TTR pension. 

When you reach the age of 60, the payments from the pension are also tax free. Even before you reach 60 years, part of the pension may still be taxfree (the tax-free component) with the remaining portion being treated as taxable income (the taxable component). The good news is that this taxable component comes with a 15 per cent tax offset, which reduces the tax paid on this part of the income.Therefore, if you have a low marginal tax rate, this strategy can still make a lot of sense for those aged between 55 and 60, from a tax-saving point of view. If you are over 60, then this is almost always a beneficial tax strategy to consider.

Some people leverage these tax advantages from starting a pension without actually making any changes to their work patterns or lifestyle. This very popular strategy is to effectively use the extra income from your TTR pension to increase the amount of salary you sacrifice to your superannuation or the personal super contributions you make. This would then allow you to maintain your after-tax income at the same time as increasing your overall retirement savings. This works because the tax you are paying on your concessional contributions to superannuation is only 15 per cent compared with your marginal tax rate, which can be as high as 49 per cent.

So by structuring your income differently, putting more of your pre-tax salary into super and receiving regular income from both your employer and a TTR pension, you can pay significantly less tax. That’s more super for when you retire, without having to give up any income today.

Now, there are limits to this strategy, so you should take note of the current allowable level of concessional contributions. In summary, if you are aged over 55 and considering how retirement might work best for you, then you should certainly obtain professional financial advice on whether a TTR approach is a suitable strategy.

This article provides general information only. It does not take the place of professional financial and taxation advice. See an accredited financial professional for individual-based advice. (Read full disclaimer.)

To learn more about TTR, visit Reserve Financial Consulting and YourLifeChoices.


    To make a comment, please register or login
    18th Jun 2015
    Oh for heavens sake. All you have to do is buy a boat, a tinny will do. Then you can sit around all day, spending nothing, dreaming about how good it will be next time, [if ever] you take it out.
    Young Simmo
    18th Jun 2015
    For those blokes contemplating retirement, I can tell you that retirement takes all day and there is no time left to do anything. So if you have lawns to mow and roofs to paint etc, make sure your wife is fit and up to it.
    18th Jun 2015
    Yes my father tells me he doesn't know how he had time to work and now I'm there, and ferrying aged parent & inlaws to hospitals, doctors, etc I know what he means!
    18th Jun 2015
    You do slow down a bit around retirement time. I recently rebuilt the rear brakes in my 1980 Triumph TR7. It took me 3 days to do what would have been a mornings work 20 years ago. But who cares, I now have brakes to see me out, & it costs very little when you do it yourself.

    We slow down a bit too, so as long as you don't have to survey the passing world from the deck of a luxury cruise liner, or a 5 star resort somewhere, it doesn't have to be expensive to have fun.

    My son bought a cheap remote controlled aircraft. He only had a couple of crashes before he was handling it well. I was always good at things requiring dexterity, so expected to be the same, but I had forgotten my age. We just don't learn skills as quickly as we used to. By the time I had finally mastered it, the thing was as much hot glue from repairs as it was original aircraft.

    I did admire his ingenuity with a 40 Ft by 2 inch aluminium irrigation pipe & a flag pole to get it out of the tree where I'd parked it. Yep retirement can be fun & inexpensive, & as Young Simmo says, I don't know how I ever found the time to go to work.
    Young Simmo
    18th Jun 2015
    G'day Hasbeen, I went from a 125 BSA Bantam, to a 1952 Triumph Tiger 100 around about 1958. What a leap upwards that was, it was the all Alloy 500cc motor with a Sprung Hub. Not as comfy as a swinging, arm but still better than a rigid.
    Not Senile Yet!
    20th Jun 2015
    Had a BSA 650 Gold Flash...restored it and painted it Black & Gold.....wish I still had it now.....they are worth a fortune!!!!!!
    Then went through a couple of Honda's getting to work & Back over the years!
    Bought a 1985 V750 Black Honda straight off the showroom it into the ground by 1994 so went back and purchased a 1995 Red VFR750 and continued riding till 2010 when I discovered that I had aged faster than the bike......slowed reflexes!!!!
    Regrettably sold it because it had become too fast for the Old Fart that used to ride it!!!
    Probably ridden over 300,000klms all over Australia....only came to grief twice....once my fault...the other caused by bad road works!!!
    Spent so long being called a Temporary Australian (Death Wish they say?) that I have outlived all my Motorcycle Friends!!!!
    People still do not believe me when I tell them there used to be NO SPEED LIMITS outside built-up areas and that there were NO Speed Cameras or Police that give a Darn!!!!
    Young Simmo
    20th Jun 2015
    Yeh Not Senile Yet!, I can remember hitting 96 MPH on my Tiger 100 about 10 o'clock on a Sat morning on Scarborough Beach road Osborne Pk. Today I would be locked up in a mental hospital. That was when WA had their first Police Traffic Car, a Mark One Zephur.
    22nd Jun 2015
    After you have passed on in this life and if you should come back do so has a Australian citizens employee MP because whiles in the job you get good wages and other perks . However, unlike all other employees in how nation you will get just after a few years in the job and leaving it life long forms of pensions and other perks hence no need to be worry about the age pension and if you have monies to live.
    25th Jun 2015
    "Quote" Whether you’ve built up savings from superannuation, investment property, equity in your home, money in the bank, or an inheritance, you will need to turn this capital into an income stream to fund your retirement. Unquote"
    What?? If I want an old age pension I am required to spend my bank savings, Superannuation, any property I might have etc? This is bullshit. What about the inheritance we had hoped and planned to leave our children? Is owning our own home all we are permitted to keep? Or do we have to sell that too? What if we don't own a home? I have vacant property which we plan to leave to our children. I'll be buggered if I'm going to let the government railroad me into selling it. I worked for years. Paid my taxes. I wish they would leave things as they were. I feel we're getting the wrong end of the stick here.

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