The pros and cons of transition to retirement

In superannuation terms, transition to retirement is accessing your super while you are still working and drawing an income stream to supplement also receiving a salary. Transition to retirement (TTR) strategies have the potential to give pre-retirees some lifestyle flexibility as well as a financial boost.

How a TTR strategy works at QSuper

You apply to commence a QSuper Income account using money transferred from your QSuper Accumulation account. Via QSuper you can.

• Keep your existing QSuper Accumulation account open, to continue to grow your balance and for your employer to make your super contributions on your behalf
• Decide how much to withdraw as a regular income stream between a minimum of 4% and a maximum of 10% of the Income account balance
• Choose when to receive your regular income stream - fortnightly, monthly, quarterly, half-yearly or annual payment

You may also want to talk to a financial professional before making a decision.

Who can use a TTR strategy?

To find out - ask yourself the following four questions:

  I am under age 65

  I have reached my preservation age (between 55 and 60, depending on when you were born);

  I am still working; and

  I am an existing QSuper member with a minimum account balance of $30,000.

Advantages of a TTR strategy

There are a number of reasons why some people may decide to start withdrawing their super while still working. These reasons may include:

  Working less / part-time and supplementing a lower income from super

  Choosing to take a lower paid job

  Paying off a debt

  Spending money on a renovation or something else you don’t have cash to pay for

  Tax-effective options, such as salary sacrificing

ASIC’s Moneysmart.gov.au says ongoing employer contributions can help rebuild the amount withdrawn in pension payments.

“If you are aged 60 or older, in most cases, your pension payments will be tax-free. If you are aged 55-59 then the taxable portion of your pension payments will be taxed at your marginal tax rate, however you will receive a 15 per cent tax offset,” ASIC says.

Some pre-retirees may also be able to use a TTR strategy to lower their overall tax rate. Seek professional advice when undertaking any TTR planning.

Disadvantages of a TTR strategy

You ideally need your savings to last throughout your retirement, and the earlier you start spending your super, the faster you may deplete it.

Before starting a TTR you should consider your retirement plan and see how your super will last in retirement.

With a TTR you must withdraw at least 4% of the balance of your TTR account and can access a maximum of 10%. These restrictions mean that you need to consider how much of your super you transfer into a TTR account when you open it. You cannot withdraw a lump sum.

If you want to supplement your income, a TTR account is often one of several solutions for you to consider.

Your retirement bonus

When you fully retire or on turning 65, you may be eligible for QSuper’s industry-leading Transfer Bonus. If you’re eligible, it will be calculated automatically and paid upon commencement a standard QSuper Income account.

1 Moneysmart.gov.au accessed on 17/1/19
2 Moneysmart.gov.au fact sheet about transition to retirement. https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/income-from-super/transition-to-retirement