Getting closer to retirement means getting closer to doing the things you love.

You might want to work fewer hours so you can travel, spend more time with the grandchildren, or simply take life a little easier. A transition to retirement strategy (TTR) can help make things run smoothly.

A TTR means you can transfer some of your super to an Income account and draw on the income to supplement your reduced salary.

If you’re under 60, a 15% tax offset will be applied to payments from your Income account. But if you’re 60 or over, you won’t need to pay any tax on your withdrawals. Investment earnings are taxed at 15%.

Debbie is 62 years old and works as an administration assistant. She earns $60,000 a year and has $180,000 in super. Debbie had planned to retire at 65 but now wants to cut back on work to care for her new grandchild.

After meeting with a financial adviser, Debbie decides to transfer most of her super into an Income account. She can then top up her salary with payments from her Income account and reduce her overall taxable income.

Before TTR  After TTR 
Assessable $60,000 $36,000
Payment from Income account $0 $15,510
Tax $12,147 $3,657
Take home pay $47,853 $47,853

Assumptions:

1. Tax is payable at 15% on investment earnings. There is no tax payable on income from her Income account.

2. Debbie is not claiming reduction of or exemption from the Medicare levy, using tax rate tables for 2016/2017 and Medicare levy of 2%.

3. The lower income tax offset has been applied to income tax payable for both strategies.

4. The amount of income payments using a TTR strategy that can be withdrawn each year by Debbie must be between the minimum 4% and maximum 10% of the account balance (initially on opening and then annually as at 1 July).

A TTR strategy could leave you with less income in retirement, so it’s important to get expert financial advice first. You can get advice about using a TTR strategy from QInvest .

If you want to start a TTR, you can transfer part of your Defined Benefit to an Income account. Remember that if you decrease your working hours, your multiple will grow at a slower rate than if you worked full-time, because your employer contributes less into your super if you’re working less.

Your full time equivalent salary for super will still be used to calculate your benefit at retirement. Here's an example:

Jodie (full-time) Phil (part-time)3
Existing multiple1 6 6
Three more years 6.63 6.315
Benefit2 $331,500 $315,750

Assumptions

1. Full-time employment at maximum contribution rate for approximately 30 years.

2. $50,000 final average salary and multiple growth for standard core government arrangements.

3. 50% working hours for part-time.