How do I fund semi-retirement?
You could supplement your income with a transition to retirement pension.
What is a TTR pension?
A transition to retirement (TTR) pension is a type of account based pension that can be started with your super if you have reached your preservation age, but have not yet retired.
How does it work?
A TTR pension allows you access to some of your super when you’re approaching retirement in the form of an income stream which can be commenced once you reach preservation age (age 60). This means you can supplement your income with the super you’ve accumulated throughout your working life. A TTR pension is an account based pension in ‘pre-retirement phase’. This means that tax on earnings in your TTR will continue to be at a maximum rate of 15% (the same as if funds held in the accumulation phase). Once you’re 65 or notify your super fund that you’ve retired or meet certain other conditions of release, your TTR will enter retirement phase where earnings are tax-free.
What are the benefits?
- Receive an income to maintain your living standard when winding back your work.
- Pay less tax: TTR payments are tax-free1 as this income stream can only be commenced once you reach age 60.
Important things to consider
- You’ll need to draw a minimum income each year, which is 4%² of the account balance per annum under age 65.
- The maximum income you can draw each year is 10% of the account balance.
- Once your TTR is in retirement phase it is assessed against your transfer balance cap. This cap limits the amount you can have in retirement phase and penalties may apply if this is exceeded.
Case study
Mark, aged 60, works full-time, earns a salary of $80,000 p.a. (or $63,612 after tax including Medicare levy) and has $400,000 in super. He wants to cut back to a three-day working week.
While Mark’s salary will reduce to $48,000 p.a., he doesn’t want to compromise his living standard. He invests his entire super benefit in a TTR pension and draws an income of $21,480 over the next 12 months.
By using this strategy, he’ll be able to replace his reduction in salary of $32,000 and continue to receive an after-tax income of $63,612 p.a. He’ll also pay $10,520 less tax. This is because the TTR income payments are tax free because he is 60, whereas his salary is fully taxable at his marginal rates.
| In year one | Before strategy | After strategy |
|---|---|---|
| Pre-tax salary | $80,000 | $48,000 |
| TTR pension income | Nil | $21,480 |
| Total pre-tax income | $80,000 | $69,480 |
| Less tax payable³ | ($14,788) | ($5,188⁴) |
| Low income tax offset (LITO) | Nil | $280 |
| Less Medicare Levy at 2% | ($1,600) | ($960) |
| Total tax payable | $16,388 | $5,868 |
| After-tax income | $63,612 | $63,612 |
1. Assume the TTR pension is commenced from a taxed super fund and therefore $21,480 pension payments are received tax free after age 60 and not subject to Medicare levy.
2. Medicare levy (single, no dependents) 2% on pre -tax salary, i.e. on $80,000 is $1,600 or on $48,000 is $960.
3. Tax payable is based on the 2025/26 rates and thresholds.
4. Tax only applies on $48,000 as TTR pension income is not taxable.
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General advice and information only
Any advice and information on this website is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice on this website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.
Tax disclaimer
Any general tax information on this website is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
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