Transition to retirement strategies

A transition to retirement strategy could help you dial down your working week ahead of full retirement, without necessarily having to lower your income.

What is a transition to retirement strategy?

You may be able to access your super before you retire from the workforce completely using a transition to retirement strategy. It can let you access your super while you are still in the workforce, to achieve a number of goals.

Income swap strategy

One option is an ‘income swap’ strategy. This generally suits pre-retirees hoping to boost their super savings ahead of full time retirement. 

In practice, it involves making additional super contributions via salary sacrifice (where your employer pays part of your pre-tax salary into your super fund rather than receiving the money as cash in hand). The difference in take home cash is made up of with payments from a TTR pension using your super. 

Replacement of income

The second type of strategy focuses on replacement of income. Here, you may choose to wind back your working week and use the funds provided by a transition to retirement pension to enjoy the same level of after-tax income even though you have cut back the number of hours worked.

Good advice is essential

A transition to retirement strategy may sound easy on paper but there are key aspects of a transition to retirement pension that call for some professional financial advice.

Not everyone can access a transition to retirement pension

Transition to retirement pensions are only available when you reach preservation age. That’s the age at which, by law, you can access your super. Australians born on or after 1 July 1964 won’t reach preservation age until age 60. It can still be worth talking to your adviser about a transition to retirement strategy at an earlier stage.

Some advance planning is always worthwhile and this leads to another consideration, not all super funds offer transition to retirement options. One way around this issue is to switch to a different super fund. If you use a self-managed super fund the trust deed will need to allow transition to retirement income streams.

You could exhaust your super sooner than expected 

Your super may need to last a long time – potentially several decades. So it is important to consider ‘when is the right time to embark on a transition to retirement strategy?’ Tapping into your superannuation via a transition to retirement pension at, say, age 60, could see you outlive your superannuation savings if you live to age 90.

This makes it critical to look at how much can be drawn down via a transition to retirement pension to meet your needs today while still providing sufficient super savings to enjoy a comfortable retirement. There is no single ‘right’ answer here – it’s all about what suits your goals and situation.

To learn more about transition to retirement strategies, contact us to arrange to speak to a BT Adviser
We explain the rules about how much you can contribute into super each year – and when you can start to draw on your super, in line with your age and life stages.
Learn how to determine the amount of super you need to support your preferred retirement lifestyle. It’s about finding the retirement number that’s right for you.
Consolidating your super means transferring multiple balances into a single super account. It makes it easier to keep track of your super savings and could see you save on account keeping fees.

This information is current as at 15/08/2016.

This information has been prepared without taking account of your personal objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs.

This information provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

Before requesting a rollover, you should consider where your future employer contributions will be paid (if your employer contributions are currently being paid to another fund) and check with your other fund(s) to determine whether there are any exit or withdrawal fees for moving your benefit, or other loss of benefits (e.g. insurance cover), noting that you may not receive the same type or level of benefits after the rollover. You may not be covered for injuries or illnesses that have arisen since you took out previous insurance, and you may lose loyalty benefits.