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What's a 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.
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 when you first open your account, and is reset 1 July each year.
Temporary reduction of minimum pension payments
The Government is temporally reducing the minimum drawdown requirements for account-based pensions (such as the Pre-retirement Super Pension) by 50% for 2019-20 and 2020-21.
This measure may benefit retirees by reducing the need to sell investment assets to fund minimum drawdown requirements.
You don’t have do anything to qualify for the reduced drawdown rates. These will be available to anyone with an account-based pension.
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||Temporary minimum drawdown rates for the 2020 and 2021 financial years||Standard minimum drawdown rates in preceding years|
|65 to 74||2.5%||5%|
|75 to 79||3%||6%|
|80 to 84||3.5%||7%|
|85 to 89||4.5%||9%|
|90 to 94||5.5%||11%|
|95 or over||7%||14%|
How the lower drawdown rates could help you
The Government has put together an example of how a retiree might use the reduced drawdown rate to preserve their capital while still drawing an income from their account-based pension.
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.
Speak with a retirement specialist
Instead of sifting through information to find out what's relevant to you, ask to speak to a retirement specialist. There's no extra cost to use this service. The team's available between 9am and 5pm (AEST/AEDT) on 1800 222 071.
Use the form below to request a call back. Note that the call back service is available for Australian residents only. If you're overseas, please call +61 3 9192 4414.