CPD: Transition to Retirement


‘Transition to retirement’ strategies can be used to help clients achieve their financial objectives.

As increasing numbers of baby boomers approach retirement, the demand for retirement advice will increase. This article, sponsored by Russell Investments, examines the importance of sound pre-retirement planning and the use of a formalised generation Transition to Retirement (TTR) strategy.

We’ve all been subject to the advertising; halcyon days, white linen clad couples holding hands on the beach, speeding through retirement in a convertible or ambling along in a caravan. While many Australians look forward to retirement through rose coloured glasses, it takes planning to meet those expectations. As well as planning for an active retirement, there’s the longer term picture to consider, including retirement housing and funding aged care needs.

There are approximately five million baby boomers in Australia entering, or about to enter, their retirement years. According to demographer Bernard Salt, these baby boomers have a plan: ‘to work in retirement, to remain active, to build their super, to downsize, to leave a legacy inheritance and to remain independent for as long as possible’[1].  As illustrated in figure one, the proportion of older Australians will continue to increase over the coming years.

As the baby boomers celebrate their increased longevity and all they plan to do over 20 plus years in retirement, there’s something important that underpins their ability to achieve this – a sound financial plan, one which needs to commence before they hit retirement.

Pre-retirement planning

In 2020-21 around two-thirds of retiring Australians will have a superannuation balance under $250,000. Even in conjunction with the Age Pension, this is unlikely to provide the retirement lifestyle many baby boomers expect. It also reinforces the need for pre-retirement planning.

The Investment Trends 2021 Retirement Income Report is an in-depth study of Australians’ attitudes towards retirement and post-retirement issues. Its latest report highlights an increased number of pre-retirees feel very well prepared for retirement; at 16 percent up from 10 percent the previous year. Another 45 percent feel ‘somewhat prepared’ (up from 36 percent). The remainder, 39 percent, are concerned about having enough money for extras in retirement.

According to the report, pre-retirees believe they will need on average $4,500 per month for a comfortable retirement; somewhat higher than the $45,239 per annum suggested by ASFA[2].  Interestingly, the Investment Trends research found that for the first time in five years, 50 percent of respondents expect their retirement savings to outlast them. Of course, that means that 50 percent of retirees are not confident they can fund their retirement, which further supports the importance of pre-retirement planning.

A ‘Transition to Retirement’ strategy

When working with pre-retirement clients, a Transition to Retirement (TTR) strategy can be useful for those clients aged 58 or over, who have reached their preservation age (figure two) and are still working. A TTR enables clients to access their super as an income stream while they are still working to achieve one of several objectives. This is sometimes called a Transition to Retirement Income Stream (TRIS).

A TTR strategy generally involves restructuring the way your client receives income by enabling them to top up the income received from their employment with a regular income stream from their super. Accordingly, the client receives income from two sources: their employer and their super fund. Clients can also take advantage of certain tax rules to boost their retirement income.

A TTR can be used in several ways:

1. To subsidise a move into part-time work

Clients approaching retirement may want to reduce their working hours, but not their income. They may still have debts to service, holidays booked, or renovations planned. Clients can ease into retirement by working fewer hours and supplementing the reduced income with a regular income from their super fund, via a TTR income stream.

Case study: Easing into retirement

Julie was born on 13 January 1961 and has decided she would like to cut down from full time to part time employment, to ease her way into retirement. With advice from her financial adviser, she agrees with her employer to reduce her working week to three days.

Because Julie has reached preservation age, her adviser facilitates the transfer of a portion of her super savings into a TTR pension account that her superannuation fund has established for her. Each month, a regular sum is transferred from the TTR account to her savings account.

Julie still receives a wage from her job, but it’s reduced in line with her reduced hours. The extra income from the TTR pension tops up her overall income. That way Julie is able to ease into retirement by reducing her workload, without having to forgo her income.

2. To provide an increased income while continuing to work the same number of hours

Other clients might wish to increase their income while maintaining their existing work arrangement. This might be to pay down debt before retirement or meet other financial or lifestyle objectives.

Case study: Paying off the mortgage before retirement

Bill was born on the 22 May 1960. He and his wife Pauline, born later in 1960, have a lot of plans for retirement. However, projections show they will take an outstanding mortgage of around $200,000 into retirement.

In consultation with their adviser, they decided that rather drawing a lump sum from the super fund upon retirement, they would use a TRIS to increase their income and pay down their mortgage as quickly as possible. While they may need to use a small amount of capital to pay it out when they finally retire, they should be able to significantly reduce it. This way, they will retain capital in the super fund to generate income to support their retirement.

3. To boost a super balance

Some clients may not have sufficient superannuation, particularly women who are more likely to have held part time roles and taken career breaks. A TTR can be used for such clients to contribute a greater portion of their earned income into super via a salary sacrifice arrangement. At the same time, the client draws a TRIS from their super fund, to maintain their level of income.

As the client continues to work, they continue receiving super guarantee contributions from their employer, as well as salary sacrifice or voluntary (after-tax) contributions they make. This is an effective way of growing a superannuation balance growing.

Clients who choose to salary sacrifice into super could pay less income tax. For those clients aged 60 or over, the pension income is tax free. For those under 60 (and have met their preservation age), their pension income is taxed at their marginal tax rate, however, they do receive a 15% tax offset. By salary sacrificing some of their pay to super, the client will also reduce their taxable income.

Using this strategy to top up super rather than other investments is also tax effective; investment earnings on investments funding the pension are taxed at the concessional rate of up to 15%, whereas tax on investment earnings outside super is generally higher.

Case study: How Steve saved over $3,500 in tax and added this to his super savings

Steve, 60, is still working full time, earning $70,000 plus his super guarantee contribution, and plans to retire when he is 65. With five years up his sleeve, he wants to bolster his retirement savings. While he will be limited by his concessional contributions cap of $27,500 a year, his adviser looks into taking out a TRIS so he can start a TTR strategy and salary sacrifice more into his super.

Steve salary sacrifices as much of his salary as possible into his existing super account, and draws down an amount from his pension account, so that he still has the same amount of money on which to live. The maximum he may draw down is 10% of his pension account.

In one year, Steve can save over $4,000 in tax and contribute this to his super by putting it straight into his existing super fund. Over the five years between age 60 and 65, Steve can boost his super by over $20,000 while keeping the same take home pay. This strategy is tax effective, because income payments from a pension account are tax free for people aged 60 and over.

Things to consider with a TTR

When discussing a TTR strategy with clients, there are a number of factors to consider:

Does the client’s fund accommodate TTR?

Not all superannuation funds accommodate a TTR pension.

Contribution limits

There are limits as to how much an individual can contribute to super each year. For the 2021/22 financial year, an individual can make concessional (or before-tax) contributions to super of up to $27,500.

Concessional contributions include superannuation guarantee contributions made by employers, personal contributions (for which the client has claimed a tax deduction), and any voluntary salary sacrifice contributions made. Contributions above the limit will be taxed at the client’s individual marginal tax rate plus an Excess Concessional Contributions charge.

Some strategies will reduce the overall super balance

Removing money from an accumulation superannuation account could impact its potential earnings over time, which could reduce the account’s balance at retirement.

Defined benefit members

If your client is in a defined benefit scheme, the amount they can transfer from their existing account into a pension may be limited to the accumulation portion of their benefit. However, there may be the option to transfer out of the defined benefit plan and commence a pension with the whole balance. This will vary between defined benefit schemes.

Centrelink benefits

The income you receive from a TTR pension may impact the client’s taxation status and eligibility for Centrelink benefits. Income from financial assets such as superannuation form part of Centrelink’s income test for pension eligibility.


As long as the SMSF member meets the TTR preservation age requirements and has a nil cashing restriction, they can access their superannuation benefits in other ways and don’t need a TRIS. In these circumstances, the trustees can start paying the member a normal account-based pension, or you can pay the member’s benefits as a lump sum without having to go through the process and cost of setting up a TRIS.

Rules and regulations

As with anything that involves super and tax, there are rules. Firstly, clients can only access their super benefits as a ‘non-commutable’ income stream, one that cannot be converted into a lump sum. This generally means clients are not able to take super benefits as a lump sum payment while they are still working.

Secondly, there’s a minimum and maximum amount a client may withdraw from a TTR pension each year. Until retirement or age 65, the maximum income that can be drawn in any year is 10% of the account balance. For those under 65, the minimum amount that must take each financial year is 4%.[3]

If a client does start a TTR pension but has a change of strategy or no longer needs the income, the pension can be stopped at any time.

As baby boomers continue to reach retirement age over the coming years, there’s an unparalleled opportunity for advisers to work with pre-retirees to set goals and implement strategies such as TTR to meet them. Advisers are enablers; they can get their clients in the best possible position to meet their financial and lifestyle objectives in retirement.



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[1] The Government has reduced this minimum amount by 50% for the 2021/22 financial year
[2] ASFA Retirement Standard, September 2021
[3] https://www.theaustralian.com.au/business/property/baby-boomers-and-what-the-future-holds-after-covid19/news-story/15e476382713819067bf4db601a98008


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