Transition to Retirement

Daniel Brown

Financial ExpertUpdated on May 25, 2022

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Does it feel like a lifetime until you can retire and access your super fund? 

Due to the overall prices of Australian goods and services spiking 23.4% in recent years, you might worry that you’ll be short on cash before you reach retirement age. 

Jump straight to…

What if you become semi-retired, need to make big-ticket purchases, or deal with a medical emergency? 

One solution is the transition to retirement (TTR) strategy. This option lets you access part of your superannuation in your 50s, while you keep working. 

This article will provide everything you need to know about TTR. Find out how it works, who’s eligible, how to start, and some of the most effective TTR strategies.

Viktor Talashuk | Unplash

What Is a Superannuation Income Stream?

How an Australian can access their superannuation fund is based on the super’s rules. 

A super fund usually releases funds to a member in different ways after they reach preservation age:

Lump-Sum Payment – a one-off payment that can be all or part of the super savings

Super Income Stream – the super fund pays part of a member’s super savings periodically, such as monthly 

Annuities and account-based pensions are some of the super income streams.

You can also receive super funds through a combination of the two payment methods. One example is receiving a lump sum and income stream. 

What Is a Person’s Preservation Age?

Australia’s preservation age is the minimum age that government legislation requires for you to access your super. In most cases, you cannot access your superannuation until you reach that age and retire.

The preservation age is based on your date of birth. Therefore, you can access your super at a particular age based on your birth year. 

In some situations, such as TTR and being a member of an untaxed super scheme known as a Gold State Super, you can access your super before retiring. 

What to Do When You’re Ready to Retire Fully 

After you’ve reached your preservation age and you have retired permanently, you qualify for opening a retirement income stream. 

You can then access flexible income payment options, such as lump-sum withdrawals, and get tax-free investment returns. 

What a Transition to Retirement Income Stream Is

A transition to retirement income stream (TRIS) allows a semi-retired fund member to access part of their superannuation fund periodically. 

This process lets members top up their income and functions similarly to how a pension works. 

Then, after you reach your super preservation age you might be able to:

  • Remain in your current job with regular income
  • Decrease the hours you work  
  • Get periodic super payments to supplement your income 

This process is a “non-commutable income stream,” meaning you’re unable to get a lump-sum payment of your super savings. 

What Is a TTR Pension?

This type of pension lets you supplement your income by allowing you access to a portion of your super after you’ve reached the preservation age. 

During the pre-retirement phase, the pension payout is a percentage range of your account balance of each financial year.  

Before you secure a TTR pension it’s essential to research the minimum and maximum withdrawals, since they might differ based on the fiscal year.

Transition to Retirement Mechanics 

A TTR strategy allows you to access a portion of your super funds while staying in the workforce. 

If you’re 55 to 60 and still working, you can implement a TTR strategy to supplement your paychecks, boost your super fund, and reduce taxes.  

TTR Case Study 

Here’s an example of how someone can use TTR strategies. Let’s say that Jack earns $100,000 per year, which puts him within the 39% tax bracket. 

Jack also has $200,000 in super funds, hopes to continue working full time, and wants to boost his retirement savings. 

He decides to use the TTR strategy since he doesn’t have spare cash for extra contributions. 

Jack’s employer now pays a $9,500 super guarantee contribution. This process lets him do a salary sacrificing of $15,500. 

Jack foregoes future entitlement in exchange for benefits of the same value.  

This step reduces the income tax rate to 15%, but also lowers his take-home pay.  

TTR Assumptions

When reading case studies, make sure to consider various factors, including:

  • Employer contribution rates
  • Concessional contributions cap
  • The tax rate for salary sacrifice contributions
  • The tax rate for pension payments from the TTR income stream
  • Current legislation for superannuation and taxes
  • Economic investment conditions

It’s important to review TTR examples in regard to your situation. Professional financial advice can help take personal circumstances into account.  

TTR Pension Eligibility

This list includes anyone who:

  • Has reached their super fund’s preservation age 
  • Is still in the workforce
  • Has a qualifying super account  

You can apply for a TTR income stream if you meet these requirements. 

You should also consider seeking help from financial advisers to learn your best options. Always review product disclosure statements (PDS) and disclaimers with a fine-tooth comb. 

Some Key Considerations

Before opting to reduce your work hours, think about these TTR considerations:

1. If your super fund allows TTR pensions 

2. The amount of income you’d require in your current phase of life and the future 

3. If TTR would affect life insurance through your super fund 

4. The effect on government entitlements

5. Leaving a low-balance super account alone for a while

6. How long super savings will last after you retire

7. TTR strategy might not be wise if you’re at retirement age

8. If you plan to work full time until retirement age, then retire outright with an Age Pension account

A significant factor is that TTR could affect your retirement lifestyle after retiring permanently. 

TTR Strategy

As you inch toward retirement, you might decide to gradually ease into it and work part-time or build your super balance during the last couple of years in the workforce. 

A TTR retirement strategy is one option. This strategy allows you to begin getting payments from your super fund while you’re working. It provides flexibility without reducing your income. 

In most situations, super fund holders can open an account-based pension. 

A TTR strategy could have a positive impact on your work life. You could reduce your work hours and spend more time doing the things you love. 

Additionally, you could supplement your income by drawing money from a TTR income account. This step could allow you to work less, while maintaining your current lifestyle. 

A TTR strategy could also boost your super balance and reduce taxes. This result is through a tax-efficient income stream. 

 If you’re over 60 years old, payments from your super are tax-free. You can find more details including tax-deductible measures through the Australian Taxation Office (ATO)

Building an Effective TTR Strategy 

Here are the steps for an effective TTR strategy:

Step 1: Open a New TTR Income Account

If you’re over 65 and have reached your super’s preservation age, you can transfer all or a portion of your super balance to your TTR income account.

Step 2: Keep Working

Suppose you wish to keep your accumulation account open for voluntary or employer contributions. You must keep a minimum amount in the account.

Then, while working, you can access part of your super through your TTR income account.

Step 3: Draw Income from Your Super Fund

Your super fund can provide regular payments to your TTR income account.

Guide for Improving Your TTR Income Stream 

Starting a TTR Pension

You can start earning TTR pension income by transferring some superannuation to an account-based pension. 

Make sure to keep some money in the super account so you can keep receiving compulsory contributions from your employer. You could also make voluntary contributions instead.  

Starting TTR from SMSFs

It’s a wise idea to consider getting professional advice for this process. Before starting, add a mix of assets to your self-managed super fund (SMSF).

  You’ll need to distinguish the tax-free and taxable parts of the different kinds of assets. Record-keeping is critical when you use your SMSF to pay a TTR pension. Mistakes could be costly.

The complexity of SMSFs for TTR accounts is another reason to consider getting professional financial advice. 

You can decide if this option is practical based on your situation and goals.  

Arrangements and Tax Payments

If you make any withdrawals before turning 60, the government will tax you at the marginal tax rate. You’ll also get a 15% tax offset.

After you reach 60, withdrawals are usually tax-free. Investment earnings from your super account are taxed at the maximum rate of 15%.  

When creating a TTR strategy you should consider getting professional advice from advisors with an Australian financial services licence (AFSL), and companies with an Australian business number (ABN). 

These experts can provide sound advice on all your investment options. 

Stopping a TTR Pension 

When you retire or meet another super condition of release, your TTR pension automatically converts to an account-based pension.

A few changes will happen. For instance, you’ll have no maximum limit for withdrawals and you’ll qualify for tax-free investment earnings.  

TTR Pros And Cons

TTR Advantages 

  • Pay less tax. You get tax-free TTR pension payments if you’re 60 or older. If you’re 55 to 59, then the government taxes you at the marginal tax rate. You’ll still receive a 15% tax offset.
  • Keep receiving super contributions. This benefit can replace the money you withdraw. 
  • Ease into retirement life. Before you retire, you can begin planning how you’ll spend your leisure time. 

TTR Disadvantages

  • Impacts Retirement Income. You’ll have fewer savings when you retire if you begin using your superannuation early. 

Before you start a TTR, make sure to review your retirement plan and determine how long your super funds will last during retirement.

TTR requires you to withdraw between 4% to 10% of your TTR account balance. Keep in mind that you’ll be unable to withdraw a lump sum.  

  In many situations, opening a TTR account is one of several different solutions that you could consider.

A transition to pension can withdraw from your super funds while you’re still working. You can then leverage some retirement savings if you have a money crunch. Your first step is to learn whether TTR is a wise choice for you. 

Need any assistance transitioning to retirement while still in the Australian workforce? Request a call from our financial experts now!

References 

1. Transition to retirement

https://moneysmart.gov.au/retirement-income/transition-to-retirement

2. Transition to retirement (TTR) strategy

https://qsuper.qld.gov.au/retirement/transition-to-retirement

3. The pros and cons to transition to retirement 

https://qsuper.qld.gov.au/news-hub/articles/2019/01/24/02/35/the-pros-and-cons-of-transition-to-retirement

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This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.

  • It applies to loans where your regular repayment includes both interest and the gradual repayment of the amount borrowed.
  • Initial inputs will be displayed on the left hand side of the graph. Your ‘What if’ scenario (if applicable) will be
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This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.

  • It applies to loans where your regular repayment includes both interest and the gradual repayment of the amount borrowed.
  • Initial inputs will be displayed on the left hand side of the graph. Your ‘What if’ scenario (if applicable) will be
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Disclaimers

Disclaimers

This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.

  • It applies to loans where your regular repayment includes both interest and the gradual repayment of the amount borrowed.
  • Initial inputs will be displayed on the left hand side of the graph. Your ‘What if’ scenario (if applicable) will be
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Disclaimers

This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.

  • It applies to loans where your regular repayment includes both interest and the gradual repayment of the amount borrowed.
  • Initial inputs will be displayed on the left hand side of the graph. Your ‘What if’ scenario (if applicable) will be
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Disclaimers

Disclaimers

This is a model, not a prediction. Amounts and repayment periods are estimates only, actual amounts may be higher or lower.

  • It applies to loans where your regular repayment includes both interest and the gradual repayment of the amount borrowed.
  • Initial inputs will be displayed on the left hand side of the graph. Your ‘What if’ scenario (if applicable) will be
    displayed on the right hand side of the graph.