You might be ready to work fewer hours, but not quite ready to stop earning altogether. A transition to retirement (TTR) strategy can help bridge that gap: you keep working, access some of your super as an income stream and decide how quickly you want to ease into retirement.
It can also involve salary sacrificing part of your pay into super. Done well, that may improve your tax position. Done without checking the figures, it can leave you with no extra money to spend, and a more complicated super account. The aim is to make your next stage of work and retirement fit together, not to make the paperwork the main event.
What is a transition to retirement strategy?
A transition to retirement strategy usually combines two choices:
- Reduce your paid work and use a TTR income stream to help replace some of the income you give up; or
- Continue working your usual hours, salary sacrifice more of your pay into super and draw a TTR income stream to supplement your take-home pay.
A TTR income stream is a regular payment from your super fund. It can offer more flexibility as you approach retirement, but it is not the same as having unrestricted access to all your super. You generally can’t withdraw the whole balance as a lump sum under TTR rules, and annual payments are limited.
A TTR strategy is not automatically a way to increase your income. Think of it as a way to coordinate your work, super contributions and withdrawals. Whether it suits you depends on your age, tax position, super balance, cash-flow needs and plans for work.
Who can access a TTR pension?
You generally need to reach your preservation age before you can start a TTR income stream. This depends on your date of birth:
- Born before 1 July 1960: preservation age is 55.
- Born from 1 July 1960 to 30 June 1964: it rises gradually from 56 to 59.
- Born on or after 1 July 1964: preservation age is 60.
You usually don’t have to retire or stop working to start a TTR income stream once you’ve reached preservation age. Your super fund’s rules and the conditions of release that apply to you also matter. Check the ATO’s transition-to-retirement guidance and confirm your eligibility with your fund before acting.
For someone under 65 in the 2026–27 financial year, the usual minimum TTR payment is 4% of the relevant balance, and the maximum is 10%. The fund will confirm how the rules apply in the year you start and how it calculates the payment range. A TTR income stream is generally non-commutable, which means you can’t simply turn it into a lump sum whenever you want.
How salary sacrifice and TTR can work together
Salary sacrifice means you ask your employer to put some of your pre-tax pay into super. These contributions are generally taxed at 15% in the fund, rather than at your personal marginal tax rate. The concessional contributions cap includes employer super contributions as well as salary sacrifice and some personal contributions.
Let’s work through a simplified example for Alex, aged 60. Alex earns $120,000 a year, has a $300,000 super balance available for a TTR pension, and has no other concessional contributions or deductions to factor in.
Assume Alex’s employer contributes $14,400 in super over the year-12% of salary for this example, and Alex salary sacrifices $17,500. That makes total concessional contributions $31,900, below the $32,500 concessional cap for 2026–27, assuming no other contributions count towards it. Always check your own contribution records and available cap before deciding how much to contribute.
For illustration, assume Alex pays tax at a 30% marginal rate plus the 2% Medicare levy on the sacrificed amount:
- Alex salary sacrifices $17,500.
- The estimated income tax and Medicare levy avoided is $5,600 (32% of $17,500).
- Alex’s take-home salary falls by about $11,900, before any other effects.
- The super fund generally pays $2,625 contributions tax on the salary sacrifice, leaving about $14,875 invested in super.
- Alex takes $12,000 from the TTR pension over the year. At 60, payments from a taxed super fund are generally tax-free.
- The pension withdrawal broadly replaces the reduction in take-home pay, while about $2,875 remains in super from the salary-sacrifice contribution after the withdrawal.
That final figure is not a guaranteed profit. It’s an illustration of how the tax treatment might work before investment returns, fees and other details. Alex’s TTR payment is at the usual 4% minimum on a $300,000 balance; the usual 10% maximum would be $30,000. Actual minimums and payment timing depend on fund rules and the circumstances of the pension.
The result can look different if you’re under 60, have other contributions, earn a different income or are affected by other tax rules. Between preservation age and 59, taxable components of super income-stream payments are generally taxed at your marginal rate with a 15% tax offset. The tax-free component and your fund type can also affect the outcome. Check your circumstances before assuming the payment will be tax-free.
The common trap: no net gain after tax
A TTR plan can look clever on paper and still leave you with little or no extra spending money. The reason is that the salary sacrifice reduces your pay, while the pension withdrawal is taxed according to your age and the components of your super. The amount you can withdraw is also restricted.
If your TTR payment doesn’t replace the take-home pay you gave up, you may need to cut spending or draw more from savings. If the payment is higher than you need, you could be withdrawing more super than necessary. Either way, the strategy may not deliver the result you expected.
Before setting it up, compare these three amounts:
- Your take-home pay before salary sacrifice.
- Your take-home pay after salary sacrifice.
- The TTR payment you can receive after considering tax and payment limits.
Then check what happens to your super balance over time. A tax saving today is only part of the picture; withdrawals and fund investment returns affect how much remains for later.
Check the cap, and what counts towards it
For 2026–27, the general concessional contributions cap is $32,500. Your employer’s contributions count towards it, along with salary-sacrifice contributions and eligible personal contributions claimed as a tax deduction.
Using Alex’s example, $14,400 from the employer plus $17,500 salary sacrifice equals $31,900. That leaves just $600 below the general cap, before considering any other contributions that may count. If Alex receives additional employer contributions, the total could exceed the cap.
Some people may be able to use unused concessional cap amounts from earlier years, subject to eligibility rules. For example, the total super balance test applies. Check the ATO’s contribution cap information and your records before relying on unused cap space.
Also consider whether Division 293 tax could apply if your income and relevant concessional contributions are high enough. And remember: while a TTR pension is still in the transition phase, investment earnings are generally taxed in the fund, unlike earnings on super supporting a retirement-phase pension, which may receive different tax treatment.
Who might benefit most?
A TTR strategy may be worth exploring if you:
- Have reached preservation age and want to reduce your work hours gradually.
- Want to keep working while directing more of your pay into super.
- Have enough super to support the required pension payments without undermining your longer-term plan.
- Understand how the withdrawals, contributions and tax treatment affect your cash flow.
- Are comfortable reviewing the plan as your work, spending or investment circumstances change.
It may be less suitable if the pension payments would force you to withdraw more than you need, your super balance is modest, or the strategy’s tax and administration costs outweigh its benefits. It may also be a poor fit if you need unrestricted access to your super but have not met the relevant release condition.
Start with your retirement income plan
Before choosing a TTR strategy, estimate the income you’ll need and the amount you can afford to draw. Advice360’s article on how much super you may need to retire is a useful starting point. The answer depends on factors such as your preferred lifestyle, housing costs, retirement age and other income, not just one headline balance.
Advice360’s Retirement & Legacy Planning guidance can help you consider your retirement timeline, super, cash flow and longer-term family priorities together. Start by gathering your latest super statements, checking your employer contributions and writing down how much income you’d need if you reduced your hours.
We're more than happy to have a complimentary chat about your transition to retirement. Just reach out to our team and we'll find a time that suits you.
This article provides general information only and does not take your personal circumstances into account. It is not financial, tax or legal advice. Superannuation rules, tax rates and thresholds can change. Consider seeking advice from an appropriately qualified financial adviser and tax professional before making decisions.
