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Retirement

What is transition to retirement?

  • July 13 2018
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Retirement

What is transition to retirement?

By Louise Chan
July 13 2018

Transition to retirement (TTR) is the phase in life when an employed individual gradually leaves the workforce. Individuals may continue to work with reduced hours or work part-time while making salary sacrifice contributions to their superannuation fund.

What is transition to retirement?

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  • July 13 2018
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The government allows a person to commence a TTR income stream (TRIS) to supplement his or her reduced income and help maintain their pre-retirement lifestyle if they have reached their preservation age. 

It should be noted that TRIS is only available to members of accumulation super funds—those who own defined benefit funds do not have a TRIS option.

What age can you start a transition to retirement (TTR) pension?

Only people who have reached their preservation age are legally allowed to commence a TRIS pension. However, it’s not a ‘one size fits all’ approach because the preservation age depends on the individual’s birth date.

The preservation ages are as follows:

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Birthdate Preservation age
June 30, 1960 and earlier 55
July 1, 1960 - June 30, 1961 56
July 1, 1961 - June 30 1962 57
July 1, 1962 - June 30 1963 58
July 1, 1963 - June 30 1964 59
June 30, 1964 and later 60

 

Transition to retirement disadvantages

Commencing a TRIS can be helpful for pre-retirees, but there are also some disadvantages that they could face, such as:

  • Decrease in super balance
  • Withdrawal limitations
  • Policies: Transition to retirement changes in 2017

Decrease in super balance
A TRIS pension comes from a portion of the pre-retiree’s super fund balance. This means their retirement nest egg would be reduced in order for them to commence a TRIS because the TRIS money would have to come from an account-based pension account—a type of account that not all super funds offer.

If the pre-retiree’s super fund does not offer a TRIS, they would have to open an account with another fund with this option, which means they would have to pay new fees just to enjoy this option.

Withdrawal limitations
As long as the TRIS pensioner has not retired, they may only withdraw up to 10 per cent of their TRIS pension account balance annually. This maximum percentage does not change regardless of the pensioner’s age.

A minimum withdrawal requirement of at least 4 per cent of their super fund balance is also applied on July 1 of each year.

Policies: Transition to retirement changes in 2017
TRIS used to be a tax-effective way for pre-retirees to earn income while boosting their super because income from its underlying investments were exempt from tax. However, the rules for TRIS changed in 2017.

Beginning July 1, 2017, all investment earnings from TRIS accounts are taxed at 15 per cent regardless of when the TRIS was commenced. As TRIS income is considered assessable income, it is taxed at the member’s marginal rate with a 15 per cent tax offset.

Both rules apply as long as the member has not met a condition of release, permanently retire, left employment at age 60 or later or reached Age pension age (age 65 and over).

Explore Nest Egg for more information on retirement and TRIS.

 

What is transition to retirement?
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About the author

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Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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