Case study transition to retirement boosting super

Andy keeps working full-time and boosts his super

Man considering his retirement optionsAndy is 55 and earns $100,000 a year. He intends to keep working full-time for another few years. Andy has $220,000 in super.

Andy's financial adviser explored whether a transition to retirement (TTR) strategy would work for him.

How will the strategy work?

  1. Andy transfers most of his super to an account-based pension. This saves money as he won't pay tax on investment earnings on the pension account.
  2. He salary sacrifices a large amount into super. This reduces his income tax, but reduces his take-home pay.
  3. Then, he withdraws up to 10% of his pension balance each year, which boosts his overall income back to his current level.


Andy's take-home income stays the same. He saves more than $2,300 in tax overall in the first year. This means Andy will have more money in super when he finally stops work.


Here are his adviser's calculations for the first year of the TTR strategy.


TTR strategy
Gross income 100,000 100,000  
Minus salary sacrifice1 0 -20,500  
TTR pension income2 0 16,454  
Taxable income 100,000 95,954  
Minus tax & Medicare Levy3              -26,947 -22,901  
Take home pay 73,053 73,053 (Take home pay stays the same)


  Current ($) TTR strategy ($)
Super contributions: employer contributions 9,500 9,500  
Super contributions: salary sacrifice 0 20,500  
Investment returns4 15,400 15,400  
Minus contributions tax5 -1,425 -4,500  
Minus TTR pension drawdown 0 -16,454  
Minus tax on earnings6 -1,386  -31  
Net gain in super 22,089 24,415 ($2,326 more goes into super)              


  Current ($) TTR strategy ($)
Total tax paid7 29,758 27,432  
Combined tax savings        2,326 (Tax savings are now in super)

Andy is happy with his tax savings. His adviser has told him he will save even more tax when he turns 60.

How Andy's figures were calculated

Andy leaves $5,000 in super to keep his account open to receive contributions. 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.)

Tax on transition to retirement is changing

Investment returns on transition to retirement pension accounts will be taxed from 1 July 2017. See the Australian Tax Office (ATO) website for more information on the changes and how they will affect you.

Andy's strategy in the table above uses these assumptions:

  1. As Andy is over age 50, his maximum concessional super contribution is $35,000 for 2015/16. However in this scenario Andy's total concessional (employer + salary sacrifice) contributions are $30,000.
  2. 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.
  3. Under the TTR strategy, Andy's tax is reduced by a pension rebate equivalent to 15% of his pension income.
  4. 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 fund.
  5. Concessional super contributions (employer and salary sacrifice contributions) are taxed at a rate of 15% when they are received by the super fund.
  6. 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. Investment returns on a super pension account are tax free.
  7. This is the total of income tax, super contributions tax and tax on investment earnings.

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Last updated: 18 Apr 2017