4 Reasons to Start a Transition to Retirement Strategy

4 Reasons to Start a Transition to Retirement Strategy

You’ve worked hard throughout your life and are now starting to think about all the things you’ve dreamed of having time to do like buying that beach house, taking that dream holiday and spending more time with your family. There’s no better time to review your super and see how you can maximise your contributions using this highly effective strategy.

What is it?

If you’ve reached the preservation age (between 55 and 60 depending on your date of birth) and have some super accumulated, a Transition to Retirement strategy (TTR) could help you boost your super savings without cutting back on your lifestyle. It could even allow you to reduce your hours at work and supplement your reduced salary with income from your super.

There are three ways to use a TTR strategy:

  1. Keep working full time and boost your super
  2. Reduce your working hours and soften the drop in PAYG income
  3. Contribute more of your earned income to super via a salary sacrifice strategy so you can boost your super balance without reducing your take home pay.


4 benefits of a Transition to Retirement Strategy

1. Boost your super

By continuing to work you will still receive employer contributions to your super, meaning your savings can keep growing. You can further boost your super savings if you salary sacrifice some of your earned income to super.

2. Pay less tax

The tax you pay when you make a salary sacrifice contribution to super is generally lower than the tax you would pay on the same amount if you received it as salary or wages. This is because contributions made to super are generally taxed at 15% whereas income is taxed at your marginal rate which can be up to 47% (including medicare levy). Plus, by salary sacrificing some of your pay to super you will also reduce your taxable income.

The income you receive from a transition to retirement pension is more favourably taxed compared to your earned income. If you are aged 60 or over, the pension income is tax free. If you are between 55 and 59, it is taxed at your marginal rate of tax but you may receive a 15% tax rebate.

In addition, investment earnings on investments funding the pension are tax free whereas tax on investment earnings outside of a pension is generally higher.

3. Cut your hours, not your income

If you want to reduce your working hours as a way of easing into retirement, taking a TTR pension from your super fund can supplement your employment income if it’s not quite enough to maintain your current lifestyle.

4. Flexibility

If you do start a transition to retirement pension but no longer need the income, you can stop the pension at any time and simply go back to accumulating your super.


Case Study – Geoff keeps working full time and boosts his super

Geoff is 55 and earns $100,000 per annum. He intends to keep working full-time for another few years. Geoff has $220,000 in super. Let’s see whether a TTR strategy could be useful for Geoff.

How will the strategy work?

  1. Geoff transfers most of his super to an account-based pension. This saves money as he no longer has to pay tax on his investment earnings.
  2. He salary sacrifices a large amount into super. This saves income tax, but reduces his take-home pay
  3. Then, he withdraws up to 10% of his pension balance each year, which boosts his overall income back to his current level.



  1. Geoff’s take-home income stays the same and,
  2. Overall he saves $2,300 in tax in the first year and,
  3. This means Geoff will have more money in super when he finally stops work.





Final Thoughts

TTR strategies can be really powerful when used properly and the Australian Government knows it, which is why it’s on the potential chopping block. If you would like to explore your options to enjoy the benefits outlined above we can help, please call us on 02 9633 5530 or contact us here

Please note this information is general advice only. Please seek advice before acting on any information in this article.


How Geoff’s figures were calculated:
  • Geoff’s strategy in the table above used these assumptions:
  • Geoff leaves $5,000 in super to keep his account open. Investment returns in super are taxable.
  • The same employer super contributions for Geoff’s current situation and for his TTR strategy which are 9.5% of his salary. (Your employer does not have to pay super on amounts you salary sacrifice; however, most employers will continue to pay super on your gross earnings.)
  • Investment returns based on earnings of 7% and an average tax rate of 9% on super fund earnings.
  • As Geoff is over age 50, his maximum concessional super contribution is $35,000 for 2015/16.
  • Geoff’s concessional contributions are taxed at 15% when they are received by his super fund.
  • Geoff’s investment returns in super are taxed at a maximum of 15%, but may be lower if tax offsets such as dividend franking credits apply.
  • Geoff’s investment returns in his pension account are tax free.
  • The amount of TTR pension that can be withdrawn each year by Geoff must be between the minimum 4% and maximum 10% of the account balance.
Worked example courtesy of ASIC Moneysmart




Sacha Loutkovsky
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