Case study transition to retirement part-time work

Susan reduces her work hours to transition to retirement

Woman considering her retirement options

Susan has just turned 60 and has a super balance of $160,000. She earns $50,000 a year before tax.

Susan decides to only work 3 days a week so that she can gradually ease into retirement. This means her income from work will drop to $30,000 a year before tax. Susan can afford to reduce her take-home pay a little bit but can use her super to soften the drop in pay.

How will the TTR strategy work for Susan?

Susan's financial adviser shows how she can have a take-home pay of a little over $36,000 using her super:

  1. Susan transfers $155,000 of her super to an account-based pension.
  2. She draws a pension of $9,000 each year, tax-free.

Susan's TTR calculations while reducing work hours

Here are the adviser's calculations for Susan's first year.

TTR strategy
Gross income 50,000 30,000  
TTR pension income 0 9,000  
Taxable income 50,000 30,000  
Minus tax & Medicare Levy* -8,267 -2,642  
Take home pay 41,733 36,358 (Take home pay drops a bit)
Super contributions: employer contributions** 4,750 2,850  
Investment returns** 11,200 11,200  
Minus contributions tax -712 -427  
Minus TTR pension drawdown 0 -9,000  
Minus tax on earnings***  -1,008  -1,008  
Net gain in super 14,230 3,615 (Super is still growing)
Total tax paid 9,987 4,077  
COMBINED TAX SAVINGS   5,910 (Large tax saving)

* Includes low and middle income tax offset

** Investment returns based on earnings of 7%

*** Investment returns are taxed up to 15%, however offsets like dividend imputation credits often reduce the tax paid on a diversified investment portfolio. In this case study an average tax rate of 9% on super fund earnings has been used.

Benefits of the TTR strategy for Susan

  • Susan's take-home pay only drops by a little over $5,000 a year
  • Her super continues to grow as she is still working part-time
  • She saves around $5,900 in tax each year.

If Susan had retired, her super balance would be dropping by large amounts each year.

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 super changes and how they will affect you.

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Last updated: 04 Feb 2019