You might have great plans to travel the country or perhaps you aren’t quite sure what your retirement will entail. Once upon a time, retirement meant a farewell party, a gold watch and well wishes but today more people are choosing to gradually cut back on work hours instead.

While it used to be an all or nothing approach, in 2005 the government changed super rules to allow people to “transition to retirement” – that is, continue to add to their superannuation savings while easing out of the workforce before actual retirement.

Transition to Retirement (TTR) strategy

A Transition to Retirement Strategy allows you to ease yourself into retirement by moving to part-time work, supplementing your salary via your super and benefiting from tax concessions.

Basically, you keep working and contributing to super. However you can reduce your working hours and make up the difference in salary by drawing an income from your super (called a TTR income stream).

What are the benefits?

For some people, a TTR strategy can help build their wealth and reduce their tax bill. 

While the tax savings aren’t as lucrative as they once were (from 1 July 2017 the government removed some of the tax benefits associated with TTRs making them less tax effective), tax benefits do still exist.

This is because income drawn from your super is tax-free once you’re reach age 60. If you’re aged 55-59 your super pension payments could have both tax-free and taxable components specific to your financial circumstances. The taxable portion is taxed at your marginal tax rate minus a 15 per cent tax offset. 

Today the biggest benefit is a lifestyle one. You’re able to reduce your working hours without a big drop in income. This can help you “test out” retirement, try new hobbies or spend more time with family.

Transitioning to Retirement can also be a good way to have time to spend time with a partner who has already retired if you aren’t quite ready yet to retire yourself.

The downsides

Conditions do apply - not everyone is able to start a TTR strategy. For example, you need to be less than 65 years of age, reached preservation age, never met a condition of release and have at least $10,000 to invest. 

There are also limits to how much and how little income you can draw down each year from super; this is between 4 and 10 per cent of your total super balance.

Get help

TelstraSuper Financial Planning can talk about how a Transition to Retirement strategy works with you. Simply call 1300 033 166 Monday – Friday between 8.30am and 5.00pm (Melbourne time).