Transition to Retirement Strategy — How It Works

What Is a Transition to Retirement Strategy?

A transition to retirement (TTR) strategy allows you to access some of your superannuation as income while you are still working, once you reach preservation age (currently between 55 and 60, depending on your birth date). It is designed to help you ease into retirement by reducing work hours while supplementing your income from your super balance.

How It Works

Under a TTR strategy, you start a transition to retirement income stream (TRIS) from your super account. You can withdraw up to 10% of your account balance each year while continuing to work. The income stream is taxed at your marginal tax rate, but you may receive a tax offset on the taxable portion. You can also continue making super contributions while receiving the income stream.

Tax Benefits

One of the key benefits of a TTR strategy is tax efficiency. If you are over 60, the income from a TTR pension is generally tax-free. If you are under 60, the taxable component is taxed at your marginal rate, but you receive a 15% tax offset. In many cases, this can result in less tax than if you were earning the same amount through salary alone.

What Your SOA Should Cover

If your adviser has recommended a TTR strategy, your SOA should clearly explain how it works, the tax implications, the fees and costs of setting up the income stream, the impact on your super balance, and alternative strategies that were considered. TTR strategies are not suitable for everyone, so the reasoning should be tailored to your specific situation.

Risks to Consider

A TTR strategy reduces your super balance over time, which may affect your long-term retirement income. Market volatility can also impact the value of your account. Your adviser should discuss these risks and show projections of how the strategy affects your retirement outcome.

How a TTR Strategy Works

A Transition to Retirement (TTR) strategy allows you to access your superannuation as a non-commutable income stream while you continue to work. From age 60, you can draw up to 10% of your TTR account balance each year as pension payments. The key restriction is that you cannot access a lump sum (commute) the TTR pension until you meet a full condition of release, such as retiring after age 60 or ceasing employment after age 60.

The classic TTR strategy works by drawing a TTR pension (which provides tax-free income if you are over 60) while simultaneously salary sacrificing some of your employment income into super. The salary sacrifice contributions are taxed at 15% inside super rather than at your marginal rate. The result is that you maintain your take-home income while boosting your super balance — a tax arbitrage strategy that can add tens of thousands of dollars to your retirement savings.

Tax Implications of TTR

A key feature of TTR pensions is that the earnings on assets supporting the pension are taxed at 15%, not the 0% rate that applies to accounts in full retirement pension phase. This reduces the tax advantage of TTR compared to a full pension. However, the pension payments themselves are tax-free if you are aged 60 or over, providing a tax-effective income stream.

Salary sacrifice contributions made as part of a TTR strategy are subject to the concessional contributions cap of $30,000 (rising to $32,500 from July 2026). If you are considering salary sacrifice, ensure your total concessional contributions (including employer SG contributions) do not exceed the cap. Excess contributions are taxed at your marginal rate plus an excess concessional contributions charge.

Is a TTR Strategy Right for You?

TTR strategies suit different situations. They are most effective for people aged 60-67 who want to reduce work hours without reducing their lifestyle, or who want to boost their super in the final years before full retirement. TTR is less beneficial if you are on a low marginal tax rate (below 19%) since the tax arbitrage is minimal, or if you have a significant outstanding mortgage or other high-interest debt.

Your adviser should model your TTR strategy with realistic assumptions about investment returns, contribution levels, and your intended retirement age. The SOA should show the projected super balance and retirement income with and without the TTR strategy so you can see the benefit. Be aware that TTR involves investment risk — if the underlying investments perform poorly, your pension payments may reduce your capital.

Frequently Asked Questions

Can I start a TTR pension before age 60?
No. The minimum age to access a TTR pension is 60 (preservation age). Before 60, your super is preserved and cannot be accessed as a pension unless you meet a full condition of release such as permanent retirement after preservation age or terminal illness.

What is the maximum I can withdraw from a TTR pension each year?
The maximum withdrawal from a TTR pension is 10% of the account balance per year. This limit applies until you meet a full condition of release. From 1 July 2025, the minimum drawdown rate is 2-6% depending on age (same as the super pension minimum drawdown rates).

Does a TTR pension affect my Age Pension?
Yes. TTR pension payments count as income under the Age Pension income test, and the TTR account balance counts as an asset under the assets test. Depending on your overall financial situation, a TTR strategy could reduce your Age Pension entitlement. Your adviser should model this interaction before recommending the strategy.

Can I stop my TTR pension at any time?
Yes, you can stop a TTR pension and roll the balance back to accumulation phase at any time. However, if you are relying on the pension income to replace salary sacrificed wages, stopping the TTR may create a cash flow gap. Plan your TTR strategy with an exit option in mind.