Is a gradual transition into retirement right for you?

For many Australians, retirement is no longer about stopping work overnight. Instead, more people are choosing a gradual transition, reducing their work hours while maintaining their lifestyle and preparing for the next stage of life.

One strategy that may help is a Transition to Retirement Income Stream (TRIS or TTR), which allows eligible individuals to access part of their super while continuing to work.

Although TTR strategies have been around for many years, they are often overlooked despite offering greater flexibility for people who want to reduce their workload without a significant drop in income.

How a TTR strategy works

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.

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 supplement your income if you reduce your working hours, while also providing greater choice as you plan for retirement.

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% of the account balance annually. Lump-sum withdrawals are generally not permitted while the TTR remains in the pre-retirement phase.

Who might benefit?

A TTR strategy may suit people who:

• Want to reduce their working hours while maintaining their lifestyle.
• Are approaching retirement but prefer a gradual transition rather than stopping work completely.
• Are looking to maximise super contributions in the years before retirement.
• Want more flexibility in managing income and retirement planning.

For example, someone aged 60 may decide they would like more time for travel, family commitments or personal interests. By reducing their working week from five days to three, they can use income from their super to help make up part of the difference.

Supporting your lifestyle as you reduce work

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, a tax-free pension payment can help bridge the gap.

Building retirement savings while you continue working

Another commonly used TTR strategy involves salary sacrifice.

In this approach, an employee diverts part of their salary into superannuation through concessional contributions, which are generally taxed at 15% within the super fund. The reduction in take-home pay is then partially replaced through tax-free TTR pension payments.

For some people, particularly those on higher marginal tax rates, this approach may improve tax efficiency by moving a portion of employment income into superannuation, where concessional tax rates may apply.

In some circumstances, this strategy may also help increase retirement savings while maintaining a similar standard of living before retirement.

Is a TTR strategy right for you?

A Transition to Retirement strategy may help you move into retirement on your own terms. Whether you’re looking to reduce your working hours, maintain your income or make the most of your final working years, it can provide additional flexibility as part of your broader retirement plan.

Like any other strategy, a TTR arrangement should be considered in the context of your personal situation, including your age, income, super balance and retirement plans. Seeking advice can help determine whether it is the right fit for you.

Next steps

Retirement looks different for everyone. Whether you’re planning to reduce your working hours, boost your retirement savings or better understand your options, a TTR strategy may be worth considering.

A conversation with your local Nexia Adviser can help you explore the opportunities available, understand how a TTR may apply to your situation and make informed decisions about the next stage of your retirement planning.