Transition to Retirement Strategy: How Does It Work?

Retirement doesn't always happen overnight.

For some Australians, the transition from full-time employment to retirement happens gradually.

You might reduce your working week from five days to three. Or you might continue working full-time while increasing your focus on retirement savings.

A Transition to Retirement strategy, commonly called a TTR strategy, may provide another option.

What Is Transition to Retirement?

A TTR strategy allows eligible Australians who have reached preservation age to access part of their superannuation as an income stream while continuing to work.

For Australians born after 30 June 1964, preservation age is 60.

Instead of fully retiring before accessing super, you may be able to establish a transition-to-retirement income stream while continuing your employment.

How Does a TTR Strategy Work?

Typically, part of your existing super is transferred into a TTR pension account.

You then maintain an accumulation account so employer and voluntary contributions can continue to be received.

The TTR account pays you an income.

Under current rules, annual TTR pension payments are generally subject to both a minimum and a maximum, with payments ordinarily limited to no more than 10% of the account balance each financial year.

Strategy 1: Reducing Your Working Hours

One of the simplest uses of a TTR strategy is to help fund a gradual reduction in work.

Imagine you're 62 and want to move from five working days each week to four.

Your salary falls as a result.

Rather than absorbing the entire reduction in household income, you may be able to draw some income from your super through a TTR pension.

That could allow you to begin enjoying greater flexibility before fully retiring.

Strategy 2: Building Super While You Continue Working

TTR strategies can also be used differently.

Some people continue working while increasing eligible contributions to super and drawing an income from their TTR pension to help replace part of the reduced take-home pay.

Depending on your tax position and circumstances, this can potentially improve the way retirement savings are accumulated.

However, contribution caps and other rules apply, and the benefits can vary considerably between individuals.

What Happens at 65?

At age 65, a TTR income stream generally moves into retirement phase.

This is significant because the taxation of investment earnings supporting the pension can change once the income stream is in retirement phase.

Other conditions of release can also cause the pension to enter retirement phase earlier.

Is TTR Right for Everyone?

No.

A TTR strategy can involve tax, contribution and investment considerations, and withdrawing super earlier can reduce the amount available later if the strategy isn't appropriately structured.

Before implementing one, consider:

• your current income

• super balance

• contribution capacity

• tax position

• desired retirement age

• working arrangements

• cash-flow requirements

• long-term retirement income.

Transition to Retirement Advice in Perth

For people approaching retirement in Subiaco and across Perth, the final years of work can be some of the most important years for financial planning.

A TTR strategy may help some people reduce their working hours or restructure the way they build retirement savings.

But the real objective shouldn't simply be implementing a strategy because it's available.

It should be determining whether it genuinely improves your retirement outcome.

This article contains general information only and does not take into account your objectives, financial situation or needs.