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Transition to Retirement strategy

A Transition to Retirement (TTR) strategy, is a way to reduce your work hours without reducing your take-home pay. 

You can ease into retirement by working fewer hours, but you draw on your super through a Pre-retirement Super Pension to make up the difference. 

A TTR strategy can be used two different ways.

1. Outcome: Less working hours, same pay

Wind back your working hours and top up your take-home pay with an income stream of TTR pension payments.

2. Outcome: Reduced taxable income

Salary sacrifice into super and supplement the reduced income with money from super pension payments.

Are you over 60?

If you are in the over 60 age group, your TTR pension is tax free. If you are under 60 but have reached your preservation age (age 55-59 depending on your date of birth), your TTR pension income will generally be taxed below your marginal rate.

Is transition to retirement a good idea?

This depends on your own unique circumstances, but people choose a TTR strategy for all sorts of reasons:

  • to get a regular income
  • to keep the rest of their super invested while they draw it down (once age and other criteria are met, the investment earnings are tax free)
  • to reduce tax
  • to stay connected to their workplace, while enjoying extra time for themselves

How does a transition to retirement pension work?

TTR can be complex, so let’s look a couple of examples.

For instance, let’s say you turn 60 and decide you want to retire, but not quite yet. So, you chat with your employer and agree that you’ll work just three days a week.

Obviously, your wage from that employer will be less. But the shortfall can be covered by accessing your super (as long as it’s sufficient) by setting up a TTR strategy with TWUSUPER and drawing on the Pre-retirement Super Pension.

Want to dig a little deeper? See our case study and worked example to find out how this could work for you.

See case study

Some things you need to know

There are rules around minimum and maximum withdrawals when you start a Pre-retirement Super Pension. See below for more detail.

Minimum pension payments

You must draw a minimum level of pension payments each financial year - the amount depends on your age and is recalculated on your balance at 1 July each year.

As a result of the COVID-19 pandemic, the Government had temporarily reduced the minimum drawdown requirements for account-based pensions (such as the Pre-retirement Super Pension) by 50% for the Financial Years from 2019-20 through to 2022-23. 

This measure was only temporary, so from 1 July 2023, the minimum drawdown percentages will revert back to what they were pre-pandemic.

Note: During the first financial year of your account, the minimum payment is proportional to the number of days left until 30 June.

Your age Standard minimum drawdown rates from 1 July 2023 Temporary minimum drawdown rates for Financial Years from 2019-20 through to 2022-23
Under 65 4% 2%
65 to 74 5% 2.5%
75 to 79 6% 3%
80 to 84 7% 3.5%
85 to 89 9% 4.5%
90 to 94 11% 5.5%
95 or over 14% 7%

Maximum pension payments

Generally, you cannot draw more than 10% of your account in any financial year unless you meet a condition of release. For the first year, the maximum limit is calculated at the date your account starts - you must also choose whether to receive:

  • the maximum 10% amount, or
  • some lesser amount being not less than the minimum amount. 

Your maximum payment amount is then recalculated on 1 July each year.

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General advice on this website has been prepared without taking into account your objectives, financial situation or needs. Before acting on the advice, consider its appropriateness. Refer to our Product Disclosure Statements (PDS). The PDS is relevant when deciding whether to acquire or hold a product. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the TMDs at twusuper.com.au/tmd