Transition to Retirement (TTR)
Working Less, Living More: What Transition to Retirement Really Means
If you’ve reached age 60 but aren’t ready to fully retire, you might consider a Transition to Retirement (TTR) strategy. This allows you to start drawing a non-commutable pension from your super while still working.
Benefits of TTR:
- Supplement your income with pension payments if you reduce work hours.
- Potential tax savings, especially if you make salary sacrifice contributions into super.
However, earnings on TTR pensions remain taxed at 15% until you meet a condition of release such as ceasing employment after reaching preservation age or attaining age 65.
When Should You Move to the Retirement Phase?
There’s no one-size-fits-all answer. While many people plan to retire around age 65.5, the reality is often different—the average age Australians leave the workforce is 56.3. But unplanned events like illness, injury, or redundancy can force people to retire earlier than expected.2
Most people consider switching to the retirement phase when:
• They are over 60 and have retired (or met another condition of release).
• They want to take advantage of tax-free investment earnings and withdrawals.
• Their retirement savings are sufficient to support their income needs.
It’s important to review your financial goals, lifestyle needs, and eligibility before making the switch. Remember, you can only transfer up to the Transfer Balance Cap (currently at $2 million) into the retirement phase; amounts above this stay in the accumulation phase and are taxed accordingly.
Whether retirement is planned or unexpected, understanding your options can help you feel more confident about the road ahead.
Things to Consider Before Making the Switch
Super rules and thresholds change on an ongoing basis - like increases in the Transfer Balance Cap. These can impact how much you can save and how much you can move into the tax-free retirement phase. Knowing these updates helps you decide the right time to switch phases and maximise your retirement benefits.
Contribution Limits:
The concessional (pre-tax) contributions cap remains at $30,000, and the non-concessional (after-tax) cap is $120,000. Be mindful of these limits, especially if making extra contributions or salary sacrificing.
Bring-Forward Rule:
If you’re under 75, you may be able to contribute up to three years’ worth of non-concessional contributions in one go, subject to your total super balance.
Investment Strategy:
Your risk tolerance and income needs may change as you approach or enter retirement. Review your investment options to ensure they suit your new phase of life.
Transfer Balance Cap:
The maximum amount you can transfer to a tax-free retirement phase account has now risen to $2 million (up from $1.9 million). This allows eligible retirees to move more of their super into the tax-free retirement phase. If you exceed this cap, you must remove the excess from the retirement phase. The excess can remain in the accumulation phase of super and the earnings will be taxed at 15% or you can withdraw this amount.
Next Steps
- Check your current phase: Are you still building your super, or are you ready to start drawing an income?
- Review your options: Consider your age, work status, and financial goals.
- Seek advice: For tailored strategies, speak with a financial adviser or your super fund.
Your risk tolerance and income needs may change in retirement, so reviewing your investment mix is also key. You might consider speaking with a financial adviser to ensure your super strategy aligns with your goals.
Let’s get in touch
Getting expert help is all part of being with MLC. As a service to our members, our team of Financial Coaches* provide general advice related to your super, at no additional cost.
If you are a member with us, book your appointment with a Financial Coach today.
