From my experience as a financial planner, the Transition to Retirement (TTR) strategy is highly effective, versatile, and often beneficial for pre-retirees. This guide covers how the latest TTR strategy works and presents three practical examples for different retirement goals, offering techniques which can be used to enhance your own planning.

What is it?

A strategy that lets you access your super as a tax-free income stream once you turn 60, while you're still working.

How does it work?

You move super from an accumulation account to a TTR pension and draw between 4% and 10% of the balance each year.

Goals it can assist

• Work Less: Use the tax-free TTR income to replace your salary if you cut back your work hours. You can achieve the same level of income while moving towards full retirement.

• Save Tax: Combine salary sacrifice (to reduce your taxable income) with TTR payments. You can maintain the same level of income in a more tax effective manner.

• Unlock Opportunities: Utilise TTR withdrawals to strategically manage your super balance to qualify for other super rules, like the carry-forward contribution.

Understanding Your ‘Condition of Release’

Before diving into our strategy chat, it is important to understand the concept of a superannuation "condition of release." This term refers to the specific criteria that must be satisfied in order to access your superannuation benefits.

For retirement planning purposes, there are two primary types of conditions of release:

• Full or Unrestricted Release: There is no limitation on the amount of superannuation that may be accessed. Individuals qualify for this condition upon reaching age 65, or upon permanent retirement after attaining age 60.

• Partial or Restricted Release: Access to superannuation is capped, with annual limits on withdrawals.

The Transition to Retirement (TTR) strategy arises from this second, restricted category. Effective 1 July 2024, regulatory changes simplified the rules, establishing age 60 as the critical threshold. Individuals over the age of 60 who remain employed but do not yet meet a full release condition may utilise the TTR strategy.

How Does a TTR Strategy Work?

The mechanics are somewhat straightforward.

1. You use part or all of your super accumulation account to start a TTR pension.

2. Once it's started, you must draw a pension payment between 4% and 10% of your TTR pension account balance each financial year.

3. Because you are over 60, this pension income is completely tax-free.

The concept is simple enough, but the application is where the gold is found.

Using a TTR Strategy to Benefit You

Let's look at three different people with different life stages and objectives, all of whom can benefit from a TTR strategy.

Example 1: Easing into Retirement (Sandra)

Sandra is 62 and wants to transition from full-time work to part-time, but she needs every cent of her current take-home pay to maintain her lifestyle.

• Full-time: Her take-home pay is $44,666.

• Part-time (3 days/week): Her take-home pay would drop to $29,616, leaving her with an income gap of $15,050.

By starting a TTR pension, Sandra can draw $15,050 tax-free from her super to fill this gap (assuming her balance is greater than $150,500). She gets to reduce her hours, maintain her lifestyle, and save $4,950 in personal income tax (due to the TTR income being tax free).

But she can do even better. By also salary sacrificing from her part-time wage, Sandra can reduce her taxable income down to the effective tax-free threshold, meaning she pays zero personal income tax. She then simply draws a larger tax-free TTR pension to cover the bigger income gap. She still has the same take-home pay and works less, but now her total tax savings are an estimated $5,481.

Example 2: Minimising Your Tax Bill (Joan)

Joan, 60, earns $100,000 annually but is frustrated by high taxes. She needs $60,000 after tax to live on. By combining salary sacrifice with a TTR pension, Joan can lower her taxable income and use the pension to meet her living expenses.

This strategy depends on two key factors:

• Her available concessional contribution cap: Joan can use the carry-forward rule to make a large contribution of up to $75,000 in FY26, which significantly reduces her taxable income and tax bill.

• Her super balance: Importantly, she needs to have enough super to support the required TTR pension payment. The maximum she can draw is 10% of the TTR account balance.

Even if Joan's super balance isn't large enough, or she is limited with her carry-forward contribution cap, to fully execute the optimal strategy, she can still use this combination to save a significant amount of tax, which in turn accelerates her retirement savings.

Example 3: Unlocking Opportunities (James)

James, aged 63, intends to sell his investment property in the next financial year, which will result in a significant capital gain. He wishes to leverage the carry-forward super contribution rule to make a substantial tax-deductible contribution to offset this gain.

To utilise this provision, his total superannuation balance must be below $500,000 as at 30 June of the preceding year. James is concerned that his balance may slightly exceed this limit on 30 June 2026.

A potential solution is for James to commence a TTR pension in FY26 and withdraw the maximum allowable 10%. This strategy would reduce his total super balance below the $500,000 threshold ahead of 30 June 2026. By adopting this approach in FY26, James can access the carry-forward concessional contributions strategy in FY27 and significantly reduce his capital gains tax liability.

While our discussion aims to provide a basic understanding of the various benefits a TTR strategy can provide, we have used simple examples to demonstrate this. It remains crucial to understand your own position, and the full impact a TTR strategy could have, prior to implement anything to avoid pitfalls.  

If you’d like a customised look at how this could work for you, let’s chat.

Book a chat with Aimee Taylor

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