Transition to Retirement Strategies

Transition to Retirement Strategies

A “Transition to Retirement” strategy enables a person who has not yet retired, but has reached their preservation age (55yrs), to use all or part of their superannuation benefits to commence a retirement income stream such as an account based pension in order to supplement their income.

Typically, such a strategy would involve:

• Once the person has reached their preservation age (but is still working), they would use all or part of their superannuation account balance to commence a non-commutable account based pension.

• They would be required to draw a minimum level of income from their pension each year. That minimum level is based on a sliding scale, which is determined by their age. The maximum level of income that they can draw each year (until they retire or reach age 65) is set at 10% of their account balance.

• If the person did not reduce their working hours upon commencement of their pension (which many people choose to do), their total income would increase as they would now be receiving not only their employment income and other investment income, but also the income paid from their account based pension.

They could then choose to either:

• Receive the higher level of income and use the surplus to meet living expenses, or

• Use that surplus to tax effectively accumulate further funds towards their retirement through making salary sacrifice contributions into their superannuation fund.

The basis of this type of strategy is that, while employment income is fully taxable, income paid from an account based pension can be extremely tax effective.

For people over the age of 60, 100% of the income paid from their pension would be tax-free. Where a person is under the age of 60, a portion of their pension income would be taxable, however, the taxable portion would benefit from a 15% tax offset, which could then be used to reduce the tax payable on their overall income.

If they also choose to make salary sacrifice superannuation contributions with their surplus income, those contributions would only be taxed at 15%, which is generally lower than most people’s marginal tax rate.


John is 60 years old and earns $89,000 per annum, he purchased and sold a property within a 12 month time period as a result he had a Capital Gain of $48,500. John wants to reduce the amount of tax he is paying while increasing his Superannuation balance, but doesn’t want a large reduction in his take home earnings. Based on the strategy outlined below John will have a tax saving of $8,695 per year, while only a small reduction in his income.

Effect on Cash Flow/Income Tax:












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