How Transitioning to Retirement Works

Once you reach a certain age, you can use a transition to retirement strategy to continue to work while accessing some of the money in your super fund – here’s how it works.

Under the current rules, once you reach your ‘superannuation preservation age’ (between 55 and 60, depending on when you were born) you can reduce the number of hours you work but continue to supplement your income by accessing a limited amount of super without retiring. This is known as ‘transition to retirement’.

How does transition to retirement work?

Some people choose to use a transition to retirement (TTR) strategy to save tax in the lead up to retirement by continuing to work full-time and boosting their concessional super contributions, while others use it to reduce their work hours but maintain their income.

In order to use the transition to retirement rules, you’ll need to set up a ‘non-commutable’ TTR income stream. A non-commutable income stream is simply one that can’t be converted into a lump sum, but instead pays regular payments. You can use all or part of your current superannuation balance to start the TTR and must withdraw between four and 10% of your TTR account balance each financial year.

Your employer still pays superannuation guarantee and any other relevant contribution (such as salary sacrifice amounts) into your normal superannuation account, so your superannuation savings continue to grow as long as you work.  Of course, there’s a risk that your overall superannuation balance will fall if your TTR income stream is more than your superannuation contributions.

What is the preservation age?

Your preservation age will differ depending on when you were born. Here are the various preservation ages as of time of writing.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 – 30 June 1961 56
1 July 1961 – 30 June 1962 57
1 July 1962 – 30 June 1963 58
1 July 1963 – 30 June 1964 59
After 30 June 1964 60

Source: ATO

How might my TTR pension be taxed?

ASIC’s MoneySmart website advises that any withdrawals you make before the age of 60 will be taxed at your marginal tax rate, but also attract a 15% tax offset. The site outlines that once you reach the age of 60, all withdrawals made are generally tax-free. Investment earnings within your super account are taxed at 15%.


What should I consider before transitioning to retirement?

Before you decide to cut back on your work hours, here’s some of the things you should consider:

  • Whether or not your super fund accommodates a TTR pension (some don’t)
  • How much income you would ideally need in this phase of your life
  • The impact on any government entitlements
  • Whether life insurance you may have through your super fund will be affected
  • Whether or not you’d prefer to continue working fulltime until retirement age and retire outright with an account-based pension rather than transitioning with a TTR pension
  • Your super balance: if it’s on the lower side, you might want to consider leaving it alone for a while so you can:
    • Contribute more to it before you start withdrawing from it
    • Allow more time for your fund’s asset investments to earn money
  • How long your current super balance will last once you retire
  • If you’ve hit retirement age (65), you can already access your super;,so you may not need a TTR strategy

It’s also important to remember setting up a TTR pension will potentially result in less money in retirement through your super, which could influence your lifestyle when you retire permanently.

While changes to TTR pensions implemented on 1 July 2017 made them less attractive for many individuals, a TTR pension can still be worth considering for someone close to retirement age wanting to scale back their work hours while minimising the drop in their income.

Find the super fund that’s best for you by comparing funds with Canstar. The comparison table below displays some of the products currently available on Canstar’s database for Australians aged 30-39 with a balance of up to $55,000, sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Use Canstar’s superannuation comparison selector to view a wider range of super funds.

Fee, performance and asset allocation information shown in the table above have been determined according to the investment profile in the Canstar Superannuation Star Ratings methodology that matches the age group you selected.

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