Case study transition to retirement boosting super
working full-time and boosts his super
Andy is 58 and earns $100,000 a year. He intends to keep working
full-time for at least another few years. Andy has
$220,000 in super.
Andy's financial adviser explores whether a transition to retirement (TTR)
strategy will work for him.
How will the retirement
income strategy work for Andy?
- Andy will transfer most of his super to an account-based
pension. His fund requires him to leave a minimum of $5,000 in his
accumulation account to keep it open and maintain his
- He will salary sacrifice into super up to his concessional
contribution limit. This will reduce his income tax, but also his
- He can withdraw up to 10% of his pension balance each year, to
top up his overall income back to its current level.
retirement strategy calculations
Here are his adviser's calculations for the first year of the
|TTR strategy age 58 ($)
TTR strategy age 60 ($)
|Minus salary sacrifice1
|TTR pension income2
|Minus tax & Medicare
|Take home pay
||(Take home pay stays the same)
||TTR strategy age 58 ($)
||TTR strategy age 60 ($)
|Super contributions: employer contributions
|Super contributions: salary sacrifice
|Minus contributions tax5
|Minus TTR pension drawdown
|Minus tax on earnings6
|Net gain in super
||More money goes into super
||TTR strategy age 58 ($)
||TTR strategy age 60 ($0)
|Total tax paid7
||Because he pays less tax
Tax on transition to retirement pensions
Since 1 July 2017, investment returns on super transition to
retirement pensions are taxed at up to 15%, just as they are in the
accumulation phase. See the Australian Tax Office (ATO) website for
more information on the changes and how they will affect you.
Benefits of the TTR
Andy's take-home pay will stay the same. He will save nearly
$800 in tax overall in the first year. As he will increase his
super by the same amount, Andy will also have more money in super
when he finally stops work.
His adviser has told him that when he turns 60 and his TTR
pension income becomes tax free his savings will be over $3,600 a
year. That also means an extra $3,600 going into his super.
Andy decides that even though the tax savings of $734 a year are
not that big initially he will implement the strategy anyway so
that he can take full advantage as soon as he turns 60 and keeps
How Andy's TTR figures were
Andy's strategy, outlined in the table above used these
- Andy leaves $5,000 in super to keep his account open to receive
- Andy's employer continues to make super contributions based on
gross income, which are 9.5% of his salary. (Your employer does not
have to pay super on amounts you salary sacrifice; however, most
employers will continue to pay super on your gross earnings.)
- The maximum concessional super contribution is
$25,000 for 2018-19.
- The amount of TTR pension that can be withdrawn each year by
Andy must be between the legislated minimum 4% and maximum 10% of
the account balance. Andy is drawing the amount of pension
necessary to replace the income he has lost through salary
sacrifice, so that his take home pay stays the same.
- Under the TTR strategy, Andy's tax is reduced by a pension
rebate equivalent to 15% of his pension income.
- Investment returns are based on earnings of 7% and have only
been calculated on Andy's current super and pension account
balances. They do take into account returns on the current year's
super contributions. In practice, investment returns would start to
accumulate on contributions when they are received by the
- Concessional super contributions (employer and salary sacrifice
contributions) are taxed at a rate of 15% when they are received by
the super fund.
- Investment returns are taxed at a maximum of 15%, however the
overall tax rate is often lower due to offsets like dividend
imputation credits that reduce tax payable. For this case study we
have adopted an average tax rate of 9% on super fund earnings.
- This is the total of income tax, Medicare levy, super
contributions tax and tax on investment earnings.
Last updated: 22 Oct 2018