For many people approaching retirement, the move from full-time work is no longer a sudden stop. Instead, it is often a gradual process that involves reducing work hours, maintaining income and continuing to build retirement savings.
One strategy that can support this approach is a Transition to Retirement Income Stream (TRIS or TTR).¹
While TTR strategies have been around for many years, they are often overlooked despite offering valuable flexibility for people in their 60s who are still working.²
What is a TTR strategy?
A TTR strategy allows you to access some of your superannuation while continuing to work, provided you have reached your preservation age. For anyone born on or after 1 July 1964, preservation age is 60.³
The arrangement works by transferring part of your super balance into a TTR pension account. You then receive regular pension payments while continuing to earn employment income. This can help replace lost income if you reduce your working hours or supplement your income while making additional contributions to super.
Unlike a standard retirement-phase pension, a TTR pension has restrictions. Generally, you must draw a minimum pension each year and cannot withdraw more than 10 per cent of the account balance annually. Lump-sum withdrawals are generally not permitted while the TTR remains in the pre-retirement phase.⁴
Who might benefit?
A TTR strategy may suit people who:
want to reduce their working hours without a significant drop in income
are approaching retirement but are not ready to stop work completely
earn a moderate to high income and want to boost their super through salary sacrifice
want greater flexibility when planning their transition from work to retirement.
For example, someone aged 60 may decide to move from working five days a week to three days a week. By drawing a pension from their super, they may be able to replace part of that lost income while easing more gradually into retirement.
Combining work income and pension payments
One of the key attractions of a TTR strategy is the ability to combine employment income with pension payments.
If you are aged 60 or over, pension payments received from a TTR income stream are generally tax-free in your hands. Instead of experiencing a substantial reduction in disposable income, these payments can help bridge the gap if you choose to reduce your working hours.
Using a TTR strategy to improve tax efficiency
Another commonly used TTR strategy involves salary sacrifice.⁵
With this approach, an employee directs part of their salary into superannuation through concessional contributions, which are generally taxed at 15 per cent within the super fund. The reduction in take-home pay is then partially replaced through tax-free TTR pension payments.
For people on higher marginal tax rates, this strategy may improve tax efficiency by directing some income into super, where concessional contributions are generally taxed at a lower rate. The TTR pension can then be used to help maintain cash flow.
In some circumstances, this approach may also help increase retirement savings while allowing you to maintain a similar standard of living in the years leading up to retirement.
Is a TTR strategy right for you?
A Transition to Retirement strategy can provide valuable flexibility for people who want to scale back work, supplement their income or potentially improve the tax efficiency of their retirement planning.
However, the benefits depend on your individual circumstances, including your age, income level, super balance, retirement objectives and tax position. What works well for one person may offer little benefit for another.
If you’re approaching retirement and would like to understand whether a TTR strategy could help support your goals, we’d be happy to help. Contact our office to discuss whether this approach aligns with your broader retirement and financial planning objectives.
i Transition to retirement | ATO
ii iii Transition to retirement – Moneysmart.gov.au
iii Preservation age | ATO
iv TRIS requirements | ATO
v Using TTR to save on tax | Moneysmart
Important Information:
CSF Private Wealth Pty Ltd (ABN 36 634 263 148) is a Corporate Authorised Representative No.1299668 of InterPrac Financial Planning Pty Ltd (Australian Financial Services Licence Number 246638).
The information in this article is general in nature and does not take into account your objectives, financial situation or needs. Before acting on this information, consider whether it is appropriate to you, and seek personalised advice where required.
