A ’transition to retirement’ (TTR) strategy lets you access some of your super and keep working.
Setting it up can be complicated, so contact your super fund or financial adviser for advice.
How transition to retirement works
If you are age 60 or older 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 a transition to retirement income stream.
You need to keep some money in your super account to continue to receive your employer’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 Australia Financial Information Service (FIS) officer for more information.
Life insurance and TTR
You may have life insurance with your super. If you want to keep this insurance, make sure you have enough funds left in your super account to pay for premiums after 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 contributions — This helps to replace some of the money you take out of your super to start a TTR pension.
- Pay less tax — If you are 60 or older, your TTR pension payments are tax free.
- Ease into retirement — You can start planning what you'll do with your leisure time before you retire completely.
Cons
- Affects retirement income — If you start drawing down your super early, you'll have less money when you retire.
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 continue 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 earn an above-average taxable income.
Pros
- Boost your super — A TTR pension can supplement your income while you make extra contributions (e.g. by salary sacrifice) to boost your super balance.
- Save tax — You pay 15% tax on super contributions up to the concessional contributions cap ($30,000 for the 2024-25 financial year). This is likely to be lower than your marginal tax rate. By making extra super contributions (e.g. salary sacrifice), you will reduce your taxable income meaning you pay less income tax.
- Tax free pension — If you are age 60 or older, your TTR pension payments are tax free.
Cons
- Complexity — You may need to pay for financial advice to understand if this strategy is for you.
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
When you're preparing to retire, having a plan can help you feel more confident as your life and priorities change. Make a retirement plan.