Transition to retirement (TTR) — how it works now

How TTR works

1. Reach preservation age (60 for almost everyone working today)
2. Open a TTR income stream with your super fund (keeping your accumulation account open too)
3. Draw between 4% and 10% of the TTR balance each year
4. Continue working — the TTR doesn’t require retirement

How TTR is taxed

Note the middle cell: earnings inside a TTR are taxed at 15% — not 0% like a full retirement-phase pension. This is the 2017 change that killed the aggressive TTR + salary sacrifice strategy. The basic mechanics still help, but the arithmetic is tighter.

When TTR still makes sense

The “wind down hours” play

You want to drop from 5 days a week to 3 or 4. TTR pension fills the income gap without dipping into the remaining super balance at a loss. Tax-free payments (from 60) plus reduced salary often leaves you with more total after-tax money than a 4-day salary alone.

The “sacrifice more, draw TTR” play

Salary sacrifice heavily — say, $30,000 into super (concessional cap) — reducing your taxable salary dramatically. Replace the lost take-home income from a TTR pension (tax-free from 60). Net effect: the same money you’d have taken as salary is now entering super via sacrifice, being taxed at 15% instead of your marginal rate, and you’re drawing the equivalent tax-free from TTR. This still works for high earners post-2017 — just not as powerfully.

Worked example — David, 62, earning $120k

David has $700,000 in super. He keeps $300,000 in accumulation, moves $400,000 to a TTR.

• Salary sacrifices $25,000 (plus ~$14,400 SG = $39k pre-sacrifice, then reduces to avoid over-cap — simplified to $16,800 sacrifice to stay within $30k cap)
• Draws 7% from TTR: $28,000 tax-free
• Take-home from salary after reduced tax: roughly $82,000
• Total take-home: $110,000
• Extra going into super: $16,800 × 85% = $14,280

David maintains his lifestyle, shifts tax-efficient dollars into super for a few more years, and builds up the retirement balance further.

TTR traps

• You can’t access the capital — only the 4–10% annual drawdown. It’s a pension, not a lump sum.
• Earnings still taxed at 15% inside TTR. Only on full retirement (meeting a condition of release like ceasing employment after 60) does it convert to tax-free retirement phase.
• Cap still applies. TTR doesn’t exempt you from the concessional cap — the money you sacrifice still counts.
• Fund admin fees may apply twice if accumulation and TTR accounts are charged separately.

Converting TTR to a proper retirement pension

Once you meet a condition of release (e.g. ceasing employment after 60, or simply turning 65), you can convert your TTR to a standard account-based pension. At that point earnings become tax-free (0% instead of 15%). This switch is one of the biggest tax-deferred wins in the whole super system — don’t forget to ask your fund to do it.