Transition to retirement (TTR)
Easing gradually out of full-time work is often a good way to start preparing for your retirement years. The good news is, that with the Government’s transition to retirement provisions, you can reduce your work hours as you get closer to retirement age, without reducing your income.
Check how soon you can start here.
What is a TTR strategy?
A transition to retirement strategy allows you to start accessing your super as an income stream to make up the difference between your former full time wage and your new wage as a part time employee.
It means you can work less but enjoy the same standard of living you had when you were working full time.
You can even continue adding to your super by salary sacrificing – which often brings added tax benefits as well.
How transition to retirement works
You roll your superannuation savings into what is called a retirement income stream, while salary sacrificing a portion of your employment income into your super.
You can then draw a transition to retirement income stream from your super savings to make up the difference. In effect, you receive an income from your employer and another income from your super fund.
In fact, the transition to retirement rules actually allow you to continue working full-time and, by salary sacrificing, access your TTR income stream and take advantage of the greater tax benefits.
Salary sacrifice contributions are taxed at 15% instead of your income tax rate. For many people this is a worthwhile retirement strategy, but there are limits to how much of your super you can access, and of course, the earlier you access your super, the less you may have in the long run.
If you are under 65 the minimum TTR income stream is generally set at 4% and the maximum is 10%. Note: The minimum limit has been temporarily reduced by 50% (to 2%) as part of the government’s response to the economic impact of the coronavirus, for the 2019/20 and 2020/21 financial years. Read more about this change here.
Lump sum withdrawals
In general, you can only take your super savings as a lump sum when you have left the workforce completely. Therefore, you are not able to take a lump sum super payout while you are transitioning to retirement.
Tax benefits will only apply to contributions within the contributions cap.