Using your 60th as a trigger to think about the wider aspects of retirement is important. Photo: Getty

Transition-to-Retirement (TTR) Definition

A Transition-to-Retirement strategy is a specific way of accessing your superannuation while you are still working. Providing you meet the conditions of release and have turned 60, you are now able to reduce working hours and top up your income from your super.

How might you do this?

It’s helpful to work with your fund to make this change. In essence, you are moving some of savings from accumulation (savings mode) to a decumulation (or spending mode) account. Most people do this by transferring some of their super to an Account-Based Pension (ABP) from which they draw a regular income. When using a TTR, you are required to keep some of your money in your accumulation account where your employer contributions – and any extras that you make – are deposited. In essence you now have two super accounts, one to receive contributions and one from which you can withdraw a salary top-up.

This Transition-to-Retirement calculator can also help you see how you can manage your finances as you reduce your working hours.

Pros and cons

As with most financial strategies, there are pros and cons. TTRs do not suit everyone.

Possible upsides include:

• You can cut back work hours but still get a similar ‘take home’ amount
• Tax advantages – the pension part of your super is now tax free
• Your super keeps growing – in addition to the regular growth, you can keep contributing to the accumulation portion of your super and this will continue to compound and increase.

Potential downsides

• Your long-term super may be reduced if your draw out too much, too quickly
• You need to still be working to qualify for a TTR
• If your income is in an ABP, there are minimum withdrawal amounts depending upon your age
• You can inadvertently affect future Age Pension entitlements with super withdrawals, so it is important to seek advice on this aspect.

This strategy is useful until you turn 65, when you can access your super as and when you wish without complying with TTR rules.

Ending a TTR

A TTR pension automatically converts to a retirement phase pension when you meet a superannuation condition of release, such as retiring or reaching age 65. The exception is if you transfer it back into the accumulation phase, which means you will stop receiving the previous pension payments.

What does a transition to retirement life stage mean?

This is a bigger question. As described above, those turning 60 can use a TTR strategy. Alternatively, they might work on, retire fully and access super through an Account-Based Pension (without continuing to contribute), or access money in a lump sum.

But whichever option you choose, using your 60^th as a trigger to think about the wider aspects of your move to retirement is really important. Most humans don’t embrace change. We are more usually creatures of habit and tend to jog along in our comfort zones. So to change a huge proportion of our daily activities by giving up full-time work and going ‘cold turkey’ into retirement is often not the best idea. This is when a lifestage transition makes sense.

How to plan a successful retirement transition.

The key is to do this as early as possible – which means that your 60^th birthday presents a great deadline. Now is the time to consider your current and possible future financial needs particularly compared with your potential income. Also, how you want to enjoy your time. Most  of us are social creatures so that aspect of work should not be underrated. Planning how you will foster non-work social interactions well before you retire is a primary need.

So too, is planning how you will continue to maintain a sense of contribution. That’s not to say that work is the only way of doing so. But it’s just one of many. Which raises the question of how many you have in your life right now?

Planning your income

A well-planned transition to retirement will require you to have a clear idea of the following:

• Your current household expenditure and if this will vary post-work
• Your employment options – can you cut back from five days?
• If cutting back, do you need to top up reduced income?
• Are you likely to receive a pension at age 67? If so how will your super combine with Age Pension entitlements?
• Will a TTR work for you or is there a better way of funding yourself without adopting this strategy?

Want to learn more?

The very handy Transition-to-Retirement calculator allows you to see how your own savings will support this way of reducing your working hours.

Checking on your likely Retirement Balance is also a good way to kick-start your planning.

Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.

Will your money last in retirement? is part four of the 8-part Road to Retirement series.

Our next article explains how understanding superannuation leads to a better retirement.

Stick with your Industry SuperFund in retirement and your money could go further. Visit compareyourretirement.com today.

This content is produced by The New Daily in partnership with Industry Super Australia.

This information provided in this article is of a general nature only and does not constitute financial or other advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions.