Transitioning to Retirement in 2025
Back in 2022 the ABS reported there were 130,000 Australians who retired, with an average retirement age of 64. And for many Australians’ approaching their final working years in 2025, there are a number of key considerations to weigh up the steps to transition to retire or even trial retirement.
So if you have reached age 60, you may have limited access to your super through what’s called a transition to retirement pension, or TTR. This allows pre-retirees to access some of their super if they have yet to satisfy the retirement conditions that allows full access.
If you have plans to reduce your work capacity and/or access your super as TTR, this video may be helpful to plan your next chapter.
In no particular order, I have prepared my top 7 tips to consider when transitioning to retirement in 2025.
1. Purpose and Plan
Firstly, when considering accessing super prior to retirement, you need to be clear on the purpose and plan for the use of the money. The purpose of a TTR strategy would typically to be either:
- Reduce work hours and replace lost earnings using income from a TTR Pension; or
- Access super to reduce or repay debt, or cover large payments (i.e. renovations); or
- To create a strategy to reduce tax and in turn boost super. This strategy can be applied to pre-retirees to essentially or recycle money back to super and weigh up the tax benefits.
Any number of different variations to these strategies can be moulded to someone’s circumstances and goals. BUT without real purpose and careful planning, you could just be eating into your super prior to retirement and reducing the longevity of your savings.
2. Be clear on the limits that apply
With TTR pension accounts, you can access payments anywhere from a minimum of 4% up to a 10% maximum of the account balance each year, paid to your bank account. No lump sum withdrawals.
However, if you have reached age 65 or met an earlier “retirement” condition of release, you may have access to an account based pension without the 10% maximum limit and more favourable tax treatment. So be clear on your eligibility and the limits.
3. Be aware of fees and taxes
With a TTR Pension, it’s important to understand that it is a separate account within the superannuation system, which sits separately from your super in the accumulation phase. Multiple accounts mean multiple account keeping fees, so check what fees apply.
From a tax perspective, generally no tax is applied to super withdrawals or pension income from age 60. However, tax on the investment earnings in TTR is applied at up to 15%, same for the money in the accumulation phase.
4. Consider the Centrelink impacts
Before starting a TTR Pension it is important to understand how a the account might affect your eligibility (or your partner’s) for government benefits, including the Age Pension, Disability Support Pension and JobSeeker.
Super in the “accumulation” phase is not assessed by Centrelink for people under the age of 67. However, a TTR Pension is captured as a financial asset for Centrelink’s Asset’s and Income Test regardless of your age. Starting a TTR may have a detrimental impact on your payment or concessions, so it’s important that you seek financial advice if this is relevant for you.
5. Prepare to invest for Drawdown phase
From an investment perspective, money held in a TTR Pension is positioned in the ‘drawdown’ phase, meaning the investment units are sold with every pension payment to your bank account. This is big shift from money continually buying investments from years of employer and any personal super contributions. Depending on how your super is invested, your nest egg can be more exposed to market shifts and volatility in the drawdown phase.
The investment approach should reflect the changing nature of how you are using your super, your attitude to investment risk, your retirement timeframe and pension income you are drawing.
6. Paid leave as alternative to TTR Pension
After many years of work with the one employer, a pre-retiree may have significant leave or long service leave entitlements. You may be able to come to an arrangement with your employer to reduce your work capacity by 1 or 2 days a week, by taking paid leave. The paid leave will allow a continuation of employer super payments, currently 11.5% of your pay and 12% from July 2025.
Also, any extended paid leave will give you a taste of what retirement like might look like and how you would spend your time. This may be a good alternative to starting a TTR Pension.
7. Seek advice
Starting the process to draw from your super leading into retirement is a significant financial decision. A qualified financial planner will help determine your eligibility, and take you through how a TTR Pension can work to suit your circumstances and goals. A pre-retirement plan will help position your finances and provide a level of confidence as you approach your next chapter of life.
So as you can see there are a number of factors to work through when planning to transition to retirement and fully understand the option to start a TTR Pension.
It can be a very effective pre-retirement tool for some and for others it may not be worthwhile.
If you would like to have a meeting with a myself, feel free to hit the BOOK A MEETING button and then chose the day and time of the meeting. This could be for just one hour consultation to address a particular concern or to prepare the full retirement planning advice service.
Shaun Jones MAppFin (FP)
