What is a ‘transition to retirement’ strategy?

Transition to Retirement (TTR) strategies

If you’re 56, or over preservation age, and still working you can take advantage of a Transition to Retirement (TTR) strategy. This doesn’t mean you have to retire, but it may provide you with the option to boost your super and pay less tax, or reduce your working hours and still have the same take-home pay.

The benefits of a TTR strategy

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Option 1: Reduce your hours at work and keep the same pay

The first option is to cut down on the number of hours you work, without reducing your take home pay, by supplementing your income with a TTR pension.

Here’s an example: Let's say you're over 56 years old, you earn $75,000 a year and you have $250,000 in your super.

You want to cut back from 35 hours a week to 25 hours, which will reduce your salary from $75,000 to $53,500. While your super will decrease over time as you draw down your pension payments, by using a TTR strategy, you can maintain your after-tax income, despite reducing your work hours.

  Before After
Gross salary $75,000 $53,500
TTR allocated pension - $17,494
Gross assessable income $75,000 $70,994
Income tax ($17,442) ($13,416)
Take home pay $57,578 $57,578

Option 2: Boost your super balance and pay less tax

A second type of TTR strategy is to keep working and increase your salary sacrifice contributions (a pre-tax payroll deduction) to super whilst supplementing your income with a TTR pension.

Here’s an example*: Let’s say you are 56 years old and earn $70,000 a year with $200,000 in your super. You can choose to use the full amount to start a pension as income of $20,000 (maximum 10% of account balance), make a pre-tax salary sacrifice contribution of $24,609 in year one, and still receive the same amount of take-home money.

Income position  Before After
Gross salary $70,000 $70,000
Less pre-tax salary sacrifice contribution $0 ($24,609)
Add allocated pension payments $0 $20,000
Less tax paid on salary (and pension) ($15,697) ($11,088)
Net income $54,303 $54,303
Tax saving - $4,609
Superannuation position Before After
Superannuation Guarantee (SG) contributions $6,650 $6,650
Pre-tax salary sacrifice contribution $0 $24,609
Less tax paid on super contribution $998 $4,689
TTR allocation pension $0 $20,000
Extra in super $5,653 $6,570

The net result after one year? $917 extra in super.

Note: This example ignores advice fees and any other charges.

This can have long-term advantages over the years. 

A TTR strategy can be complex, so you may want to talk to an adviser before you decide if it’s right for you.

Please note: It’s important to remember that the Government proposed a number of changes to superannuation in the 2016 Federal Budget – with one of those being a proposal to change the way TTR pensions are taxed. These proposals may become legislation following the outcome of the 2016 Federal Election. You should seek financial advice before making any decisions whether a TTR strategy will be suitable for you.

When can you start a TTR strategy?

The Government sets a minimum age at which you can access your super. This is known as the ‘preservation age’. It depends on when you were born.

Date of birth Preservation age
Before 1 July 1960 55
1 July 1960 to 30 June 1961 56
1 July 1961 to 30 June 1962 57
1 July 1962 to 30 June 1963 58
1 July 1963 to 30 June 1964 59
1 July 1964 and onwards 60

The value of advice

Elizabeth, 56, wanted to make sure she was going down the right path. So, she sought advice on a plan to support her working arrangements now and the lifestyle she wants in retirement. Take a moment to listen to her story.

Want to find out more? Call us on 131 267 Monday – Thursday: 8.30am to 6pm Friday: 8.30am to5pm (AEST).

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Important information

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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement before deciding what’s right for you. This information hasn’t taken your circumstances into account. 

This information is provided by AMP Life Limited. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you. All information on this website is subject to change without notice.