Transition to retirement (TTR)

TTR explained

Jeff's transition

Jeff works for a local hardware store and has recently turned 65. He’s been with the company for over 30 years and has a wealth of knowledge and experience which the customers and management value. He’s keen to retire in a couple of years, but not just yet.

Jeff has good superannuation savings with his Industry SuperFund, currently earns $75,000 per year and is not eligible for the full aged pension.

After chatting with a financial planner from his Industry SuperFund, he has decided on a transition to retirement strategy which will see him continue to work full-time for 12 months, and then 12 months part-time.

For the next year, he will salary sacrifice 10% of his full-time income (i.e. $7,500), saving him some income tax as well. He then draws $5,100 from his super in a TTR pension, which is not taxed (because it is superannuation). His after tax income remains the same.

After one year, he will work three days per week and earn $45,000 per year. Jeff stops his salary sacrifice at this point and sets his TTR pension so his after tax income is still the same.

Easing gradually out of full-time work is often a good way to start preparing for your retirement years. The good news is, that with the Government’s transition to retirement provisions, you can reduce your work hours as you get closer to retirement age, without reducing your income.

Check how soon you can start here.

What is a TTR strategy?

A transition to retirement strategy allows you to start accessing your super as an income stream to make up the difference between your former full-time wage and your new wage as a part time employee.

It means you can work less but enjoy the same standard of living you had when you were working full time.

You can even continue adding to your super by salary sacrificing – which often brings added tax benefits as well.

How transition to retirement works

You roll your superannuation savings into what is called a retirement income stream, while salary sacrificing a portion of your employment income into your super.

You can then draw a transition to retirement income stream from your super savings to make up the difference. In effect, you receive an income from your employer and another income from your super fund.

In fact, the transition to retirement rules actually allow you to continue working full-time and, by salary sacrificing, access your TTR income stream and take advantage of the greater tax benefits.

Salary sacrifice contributions are taxed at 15% instead of your income tax rate. For many people this is a worthwhile retirement strategy, but there are limits to how much of your super you can access, and of course, the earlier you access your super, the less you may have in the long run.

Limits

Minimum/maximum limits

If you are under 65 the minimum TTR income stream is generally set at 4% and the maximum is 10%.

Lump sum withdrawals

In general, you can only take your super savings as a lump sum when you have left the workforce completely. Therefore, you are not able to take a lump sum super payout while you are transitioning to retirement.