You've turned 60. You're not ready to stop working, but five days a week is wearing thin. Maybe there are grandchildren you'd like more time with, or a parent who needs you, or you simply want your Fridays back.
The problem is the pay cut that comes with cutting your hours.
This is the exact situation the transition to retirement rules were built for. They let you top up a part-time wage with income from your super, before you've fully retired. Here's how the rules work, what they cost you, and how to tell whether the strategy actually stacks up.
Key takeaways
- From age 60, you can draw an income from your super while still working, using a transition to retirement pension
- You must draw between 4% and 10% of the account balance each financial year
- Payments are generally tax-free from age 60
- You can't take the money as a cash lump sum while you're still working
- It's a genuinely useful strategy for some people, and a poor fit for others. The difference is in the modelling
What is a transition to retirement pension?
Normally, your super stays locked away until you retire. A transition to retirement pension is the exception.
It's an account-based income stream drawn from your super while you keep working. Part of your super balance moves into a pension account, and that account pays you a regular income alongside your wage. You may see it abbreviated as "TTR" or "TRIS" on fund websites and statements. Same thing.
The payment tops up your income. It doesn't replace your job, and it doesn't mean you've retired.
Who can start one
Two conditions, and only two:
- You've reached preservation age, which is 60 for everyone born on or after 1 July 1964 (Source: ATO When you can withdraw your super)
- You're still working. There's no requirement to cut your hours. You can start one while working full-time
That second point surprises people. Reducing your hours is one use of the strategy, but not a condition of it.
The rules: how much you can draw
The band is fixed by law. Each financial year you must draw a minimum of 4% of the account balance, and you can draw no more than 10% (Source: ATO Retirement withdrawal – lump sum or income stream).
Why the 10% ceiling? Because this is designed as a bridge, not full access. The rules deliberately stop you draining your super before you've actually retired.
For the same reason, the income stream is "non-commutable". In plain language: you can't convert it into a cash lump sum while you're still working. You must take it as regular payments (Source: ATO Transition to retirement).
The two ways people use it
Strategy one: work less, keep your income steady. Drop to three or four days a week, and use pension payments to fill the gap in your wage. This is the lifestyle version. Its goal is time, not tax.
Strategy two: work the same, pay less tax. Keep your full-time hours. Salary sacrifice part of your wage into super, within the concessional contributions cap of $32,500 for 2026–27 (Source: ATO Contributions caps). Then replace the sacrificed salary with tax-free pension payments. Money that would have been taxed at your marginal rate goes into super at the concessional rate instead, while your take-home income stays level.
Which one suits you depends entirely on what you're solving for: more time, or a better tax position on the road to retirement.
A worked example
This is a hypothetical example to show how the mechanics play out. Leah isn't a real client, and this isn't a recommendation.
Leah is 61. She earns $100,000 a year full-time and has $400,000 in super. She wants Fridays off.
- Dropping to four days cuts her salary to $80,000. That's $20,000 less in gross pay
- She moves her super into a transition to retirement pension. The rules let her draw between 4% and 10% of the balance each year: between $16,000 and $40,000
- She draws $20,000, inside the band, to replace the lost salary
Here's the part that makes the strategy interesting. The $20,000 of salary she gave up would have been taxed. The $20,000 pension payment generally isn't, because payments from a taxed super fund are tax-free from age 60 (Source: ATO Accessing your super to retire). So Leah works a day less, and her take-home income can land close to where it was, sometimes better.
And the honest other side: her super is now paying out $20,000 a year, and her employer contributions are being calculated on $80,000 instead of $100,000. Her balance at full retirement will be lower than if she'd kept working five days. Whether that trade is worth it is exactly what proper modelling answers.
The advantages
- You ease into retirement without an income cliff
- Payments are generally tax-free from age 60
- The salary sacrifice version can genuinely improve your tax position while your income stays level
- You get a live test of what living partly on super feels like, while a wage still exists underneath you
The disadvantages
This is the part fund websites tend to soft-pedal, so let's not.
- You're spending your retirement savings early. Every dollar drawn now is a dollar not compounding for the years when you've stopped entirely
- The earnings tax is worse than a real retirement pension. Investment earnings inside a transition account are taxed at up to 15%, the same as ordinary super. Earnings only become tax-exempt once the account moves into the retirement phase (Source: ATO Transition to retirement income streams)
- It adds moving parts. A second account, drawdown settings to manage each year, and paperwork
- For some people, the numbers simply don't stack up. Smaller balances, lower incomes and short timelines can all turn the strategy negative
None of these makes the strategy bad. They make it conditional. It works when the modelling says it works.
How it's taxed, at a glance
| What | Treatment |
| Pension payments, age 60 and over | Generally tax-free (Source: ATO Accessing your super to retire) |
| Salary sacrificed into super | Concessional rate inside super, within the $32,500 cap (Source: ATO Contributions caps) |
| Investment earnings inside the account | Taxed at up to 15% until the account reaches the retirement phase (Source: ATO Transition to retirement income streams) |
What happens when you fully retire, or turn 65
The transition pension isn't a dead end. It converts.
Turn 65, and your transition pension moves automatically into the retirement phase. Retire before 65 (or meet another full condition of release), and it moves once you notify your fund (Source: ATO Retirement withdrawal – lump sum or income stream).
From that point, three things change:
- The 10% maximum drawdown limit ends
- The lump sum restrictions end
- Investment earnings become tax-exempt, and the balance counts towards your transfer balance cap, which is $2.1 million per person from 1 July 2026 (Source: ATO Key super rates and thresholds)
In other words, it becomes a normal account-based pension. We cover how those work in a separate guide.
Is it right for you?
When we model a transition strategy at Peak Wealth Management, a handful of things decide the answer:
- Your balance, and what drawing on it now does to your position at full retirement
- Your marginal tax rate, which determines whether the salary sacrifice version actually saves anything meaningful
- How many years you are from stopping entirely
- Whether the real goal is time or tax, because they lead to different setups
- What the drawdown settings should be each year, rather than set-and-forget
Sometimes the modelling says yes and the strategy is excellent. Sometimes it says no, and the honest advice is to leave the super alone and find the lifestyle change another way.
Frequently Asked Questions
Yes, provided you're still working. Preservation age is 60 for everyone born on or after 1 July 1964 (Source: ATO When you can withdraw your super).
Between 4% and 10% of the account balance, each financial year (Source: ATO Retirement withdrawal – lump sum or income stream).
No. Working less is one way to use the strategy, not a requirement of it. Plenty of people run one while working full-time, purely for the salary sacrifice benefit.
Not while you're still working. A transition pension is a non-commutable income stream, meaning it can't be converted into a cash lump sum until you meet a full condition of release, such as retiring or turning 65 (Source: ATO Transition to retirement).
It moves into the retirement phase: automatically at 65, or when you notify your fund that you've retired. The 10% cap and lump sum restrictions end, and earnings become tax-exempt (Source: ATO Retirement withdrawal – lump sum or income stream).
Find out if the numbers stack up for you
Whether a transition strategy leaves you better off is a modelling question, and it's usually answered in a single conversation.
Book a free discovery call with our Sydney team. Bring your balance, your income and the retirement date you're hoping for. We'll tell you honestly whether this strategy deserves a place in your plan.
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