How do transition to retirement strategies work?

A transition to retirement strategy could allow you to work less, or work the same hours and increase your superannuation, without reducing your take-home pay.

Even if you’re nearing retirement age you mightn’t be looking to leave the workforce just yet. Maybe you want to save more money or perhaps you enjoy the interaction and mental stimulation.

Whatever the reason, a transition to retirement (TtR) strategy could provide financial flexibility as it enables you to access a portion of your super while continuing to work full-time, part-time or casually.

We answer some of the commonly asked questions about TtR strategies.

What’s a transition to retirement strategy and how does it differ to other options?

Generally you can access your super under a TtR strategy when you reach your preservation age. This will be between 55 and 60 depending on when you were born.

A TtR strategy will allow you to access up to 10% of your super through periodic payments. And, if you want to keep working, you can also continue receiving an income from your employer.

Usually, your two options with a TtR strategy include either working less, or, working the same hours while sacrificing some of your salary into super. In both cases, you can use your TtR pension to supplement any reduction in your take-home pay.

If, after you reach your preservation age, you decide you’d rather retire from the workforce, you can take your super as a lump sum or move your super into an allocated pension (also known as an account-based pension). This provides you with a regular income stream in retirement and you’re not limited to what you can withdraw.

What are the transition to retirement tax benefits?

Up to age 60, the taxable amount of your income from a TtR pension is taxed at your marginal tax rate, less a 15% tax offset. Then, once you turn 60, the income you receive from your TtR pension will be completely tax-free.

Because of the different tax treatment that applies to a TtR pension, compared to the way employment income is taxed, you could boost your super using tax-effective salary sacrifice contributions while topping up your income with a tax-effective income stream.

So, by replacing some of your salary with income from a TtR pension, you can draw a smaller amount from super and receive the same amount in your pocket. This means that your super savings should still grow each year.

You can see how TtR strategies work in practice in these examples.

Are there limitations to how much I can withdraw?

With a TtR pension, you can withdraw between 4% and 10% of your super account balance each financial year.

It’s also worth noting that a TtR pension, like an allocated pension, is based on the amount you have saved in your super. It does not guarantee an endless income.

To ensure you don’t outlast your money, our super simulator and retirement simulator can help.

What else do I need to consider?

There are a number of things to think about when it comes to TtR strategies. Speaking to an adviser could go a long way to ensuring you’re across the tax implications. Other suggestions1 include:

  • Checking your super fund, as not all funds accommodate TtR pensions
  • Figuring out whether you want to reduce your work hours or work full-time and salary sacrifice
  • Knowing your income sources and calculating your income needs
  • Finding out what your social security entitlements are, as there may be implications
  • If you have life insurance through your super fund, checking it won’t be affected in any way.

Where’s the rest of the population at?

Not many people do the sums, but research shows the retirement savings shortfall per person in Australia, excluding the government’s Age Pension, is on average around $187,200.2

With the increase in life expectancy, more people are accepting they may need to work longer, with nearly 40% of Australians aged 45 and over indicating they intend to move into part-time work before retiring, and 31% intending to continue working full-time.3

Where can I go for more information?

There’s a lot to think about when approaching retirement and a lot of options to consider.

  • To learn more about TtR pensions, check out our info page 
  • If you want assistance, speak to your financial adviser, or we can help you locate a professional in your area.

Find an adviser

Choosing the right financial adviser is an important decision, which is why AMP has developed a tool that enables you to find an expert who is right for you.

Find an adviser

News&insights

Want to keep up to date with the latest news?

Subscribe now

Salary sacrifice calculator

Compare the effect on take home pay and super by making personal super contributions, using either salary sacrifice or an after-tax contribution. 

Calculate now

Want to keep up to date with the latest news?

Sign up now

Recommended articles

Important information

Show more

© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.