Transitioning from full-time work into retirement can feel overwhelming. But with the right planning and understanding, the process can be manageable and even empowering.
In this guide, we’ll break down transition to retirement made simple and easy to understand, helping you make sense of financial options, superannuation rules, and strategies to support income.
For example, one tactic often used is smart salary sacrifice, which can help boost your retirement savings before you fully cease working.
Whether you are a few years away from retirement or already scaling back your hours, knowing how to structure your finances during this period is essential.
The goal is to maintain income, preserve your savings, and gradually adjust into retirement without dramatic lifestyle changes or financial stress.
What Is a Transition to Retirement (TTR) Strategy?
Definition and Purpose
A transition to retirement (TTR) strategy allows individuals nearing retirement to access a portion of their superannuation while still working. It offers flexibility in working hours and can help optimise your tax and cash flow during the twilight years of your career.
Under a TTR arrangement you may continue working full time or part time, but start drawing an income stream from your super. That income keeps your cash flow stable while giving your super more opportunity to grow.
Eligibility and Basic Requirements
To use a transition to retirement strategy, you must have reached your preservation age. In Australia, preservation age depends on your birth year and generally ranges from 55 to 60. You must have a superannuation account and meet the rules set by your super fund.
Not all super funds allow TTR income streams, so check the product terms before proceeding.
Benefits of Transition to Retirement
Better Tax Efficiency
One of the main advantages of a TTR is that part of your income can be paid from super, which often attracts concessional tax treatment.
This can reduce your tax burden while you’re still working. Combining salary and super income may allow you to remain under higher tax thresholds, depending on your total earnings.
Maintain or Adjust Work Hours
A TTR gives you flexibility. You can gradually reduce your work hours—say from full time to part time—while replacing a portion of your income via super. This lets you ease into retirement rather than making a sudden stop.
Boost Super via Additional Contributions
During a TTR, you may utilise strategies such as salary sacrifice or extra concessional contributions to increase your retirement balance.
Smart salary sacrifice makes sense in this phase when tax rates on contributions can be lower than your marginal rate, allowing more funds to stay invested.
Potential Drawbacks and Risks
Longevity of Your Savings
Drawing from super earlier means you are relying more heavily on your retirement savings for longer.
If your assumptions about longevity or investment returns are optimistic, you risk depleting your balance sooner than intended. It’s critical to test worst-case scenarios in your planning.
Fees and Income Caps
Some TTR products or super income streams may attract fees or have annual minimums and maximums. If your super account is small, the cost overheads might outweigh the benefits. Check what fees apply and ensure your balance justifies the arrangement.
Market Volatility Impact
When part of your wealth is exposed to market risk during your transition phase, drops in value can reduce both your super balance and the income you draw. That impacts long-term retirement security. Keep enough buffer in safer assets to manage short-term needs.
How to Structure a TTR Income Stream
Determine Safe Withdrawal Amounts
Before starting a TTR income stream, calculate how much you can reasonably withdraw without harming your long-term balance.
Many advisers suggest a withdrawal rate of up to 4 to 5 percent of your super each year, adjusted for life expectancy and investment returns. These rates are not guarantees, so revisit them periodically.
Combine with Cash Flow from Work
A TTR doesn’t require that your entire income come from super. You can continue drawing a full or part salary while receiving a super income stream to fill the gap. This flexibility allows balancing between super use and earned income.
Review Your Asset Allocation
As you begin drawing income, it’s wise to reexamine your investment mix. A more conservative allocation may reduce volatility and protect your balance. But retaining some growth assets is also important to keep your super growing over the transition period and into full retirement.
Common TTR Myths
Myth: You Must Stop Working
It is false that you need to retire fully to access a TTR. The strategy is designed to work while you continue employment or gradually reduce hours. Your super draws supplement your earned income.
Myth: No Tax Benefit
Not true. In many cases, part of your income drawn from super is taxed at a lower rate, and concessional contributions remain tax-advantaged. Some people incorrectly ignore this benefit.
Myth: All Super Funds Allow TTR
Some funds don’t support transition to retirement income streams or enforce strict product rules. Always verify with your fund whether a TTR option exists and what restrictions or costs apply.
Steps to Decide if TTR Is Right for You
Assess Your Income Needs and Goals
Think about how much income you’ll need during transition, what expenses you expect, and whether you plan to reduce hours. Map your cash flow and see where gaps may arise.
Project Your Super Balance Over Time
Using conservative return estimates and accounting for withdrawals, project where your balance might be in 5, 10, and 20 years. If the projections look sustainable, a TTR may be viable.
Run a Tax Scenario
Calculate your tax position with your current salary vs. a mix with TTR income. Compare how much tax you pay under each scenario. If TTR reduces your tax bill meaningfully, it may offer value.
Consult a Financial or Superannuation Adviser
A TTR strategy has many moving parts—investment returns, fees, tax implications, and super fund rules. An adviser can help test your assumptions, warn about risks, and suggest structure tweaks unique to you.
Frequently Asked Questions
At what age can I start a TTR strategy?
You can begin a transition to retirement once you reach preservation age, which depends on your birth year (commonly between 55 and 60). You also need a super balance and a fund that offers TTR income streams.
Can I still make super contributions while in TTR?
Yes. You can continue contributing to super through salary sacrifice or personal contributions. However, these contributions must adhere to concessional caps and rules. Extra contributions during TTR may help boost retirement savings.
What happens when the interest‑only period ends?
TTR income streams have set terms and may evolve. Once the TTR period closes or you decide to switch to full retirement, your super arrangement may require converting to a retirement income stream or shifting to another product suited to post-retirement. Plans should anticipate and model that change.
Conclusion
By making transition to retirement made simple and easy to understand, you can approach your final career years with clarity and intention.
A TTR strategy enables you to tap super income while still working, offering flexibility, tax benefits, and gradual withdrawal paths. It is not a one-size-fits-all solution, and you must weigh risks such as reduced compounding, higher fees, or market volatility.
Successful transition depends on realistic projection, smart structuring, and regular review. If circumstances change—or returns don’t meet expectations—being able to adjust is key.
For many, combining salary, packaged super withdrawals, and prudent investing provides a balanced approach.
If you’re close to retirement or planning to taper work hours, a TTR strategy may serve as a bridge. Use it wisely with support from advisers, and you may transition with less stress, more income stability, and the freedom to adjust as life evolves.