How to financially ease into retirement

Deciding when to retire is a big decision and even more difficult if you are concerned about your retirement income.

The average age of Australia’s 4.2 million retirees is 56.9 years but many people leave it a little later to finish work with most intending to retire at just over 65 years.ⁱ

If you’re not quite ready to retire, a ‘transition to retirement’ (TTR) strategy might work for you. It allows you to ease into retirement by:

• supplementing your income if you reduce your work hours, or
• boosting your super and save on tax while you keep working full time

The strategy allows you to access your super without having to fully retire and it is available to anyone 60 years or over who is still working.

“Retirement doesn’t have to be an abrupt stop—it can be a gradual shift that gives you financial flexibility,” says Craig Banning, Navwealth CEO. “A well-planned transition-to-retirement strategy can help you maintain your lifestyle while securing long-term financial stability.”

Working less for similar income

The strategy involves transferring part of your super into a special super fund account that provides an income stream. You can then withdraw up to 10% of your balance each year while still earning an income and making concessional (before-tax) contributions to your super. This approach allows you to maintain financial stability during the transition while continuing to grow your super balance.

It’s important to note that you cannot withdraw your super as a lump sum while still working—you must take it as regular payments unless special conditions apply.

Take the example of Alisha.ii Alisha, 60, earns $50,000 per year but decides to reduce her work hours to three days a week, bringing her income down to $30,000. To supplement her earnings, she transfers $155,000 of her super into a TTR pension and withdraws $9,000 annually—tax-free—to replace some of her lost income.

Income received from a TTR pension is tax-free, but it may affect government benefits received by you or your partner. Additionally, check if your super fund’s life insurance cover is impacted, as a TTR strategy can sometimes reduce or cancel it.

Give your super a boost

For those who continue working full-time beyond age 60, a TTR strategy can help increase super savings while reducing tax.

For example, Kyle, 60, earns $100,000 per year and plans to work full-time for another five years. He transfers $200,000 from his super to an account-based pension and begins a TTR strategy, allowing him to salary sacrifice into super while replacing lost income by withdrawing up to 10% of his TTR pension balance annually.iii

A TTR strategy generally works best for those with a higher super balance and a higher marginal income tax rate, but it can still provide benefits for individuals on lower incomes.

Financial Protection for Personal Events

While transitioning to retirement, it’s also important to consider financial protection for unexpected personal events. Many retirees focus on income planning but overlook personal insurance or financial buffers for unforeseen circumstances.

“A well-structured retirement plan isn’t just about income—it’s about preparing for the unexpected,” says Craig Banning. “Having the right financial protection in place ensures peace of mind, so you can focus on enjoying retirement rather than worrying about what might happen.”

TTR strategies provide flexibility, but starting withdrawals early means you’ll have less super in later years. That’s why having a personalised strategy to balance income, tax efficiency, and long-term security is essential.

Is a TTR Strategy Right for You?

TTR strategies aren’t for everyone, as there are limitations on withdrawals and potential long-term impacts on your super balance. If your employment situation changes or you have complex financial arrangements, professional advice is crucial to ensure the strategy is beneficial for your situation.

We’d be happy to help you review your retirement income options and create a strategy tailored to your financial future. Book an appointment with our trusted team today and take the first step toward a secure retirement. If you would like to discuss your retirement income options, contact us here.

i Retirement and Retirement Intentions, Australia, 2022-23 financial year | Australian Bureau of Statistics
ii, iii Transition to retirement – Moneysmart.gov.au