Transition to retirement – Is a TRIS right for you?

For many Australians, particularly those who have made their home in regional areas, such as Orange and the Central Tablelands, retirement isn’t an overnight event. Many of our clients are seeking a gradual process that involves reducing work hours, creating more lifestyle flexibility and preparing financially for the next stage of life.

Back in April, we floated the topic of a TRIS, and it has been a hot topic of conversation in recent months. When structured correctly, it can help make that transition easier.

An attractive feature of a TRIS is that you don’t need to fully retire to access some of your superannuation. In fact, the key requirement is simply reaching your preservation age, which is currently age 60 for most Australians.

Used strategically, a TRIS can provide additional income, support a reduction in working hours and potentially create tax efficiencies as you move closer to retirement.

Last month’s Federal Budget and the ongoing focus on rising costs of living, interest rates, fuel and energy prices have put the TRIS in the spotlight. Simply put, a Transition to Retirement Income Stream, commonly referred to as a TRIS or TTR pension, allows you to transfer some of your superannuation into a pension account and begin drawing an income while continuing to work.

The strategy was introduced to give Australians greater flexibility as they approach retirement. Rather than moving directly from full-time work to retirement, a TRIS allows you to gradually adjust your lifestyle and income arrangements.

For many people, it creates a valuable bridge between their working years and full retirement.

To start a TRIS, you must have reached your preservation age. For Australians born on or after 1 July 1964, preservation age is 60. Individuals born before this date may have a preservation age of 55-59, depending on their year of birth. Importantly, you do not need to retire from the workforce to commence a TRIS. This makes the strategy particularly attractive for:

• Individuals wanting to reduce their working hours.
• People seeking greater work-life balance.
• Australians looking to supplement their employment income.
• Higher-income earners exploring superannuation and tax planning opportunities.
• Those preparing for retirement over the next five to ten years.

When you establish a TRIS, part of your superannuation balance is moved from your accumulation account into a pension account. You can then receive regular pension payments while continuing to earn employment income. Current rules require:

• A minimum annual pension payment of 4% of your account balance (for those under age 65).
• A maximum annual withdrawal limit of 10% of your account balance.

For example, if you transferred $500,000 into a TRIS account:

• Minimum annual payment: $20,000
• Maximum annual payment: $50,000

These payments can be received monthly, quarterly, half-yearly or annually, depending on your needs.

Lifestyle flexibility is the most significant reason people seek a TRIS. Having the flexibility to transition from full-time work to part-time employment without depleting their current lifestyle is a highly attractive option. Rather than experiencing a sudden drop in income, pension payments can help replace some of the earnings lost through reduced working hours.

For individuals aged 60 and over, pension payments received from a taxed super fund are generally tax-free. Some people also use a TRIS alongside salary sacrifice contributions, allowing them to redirect more income into super while maintaining their overall cash flow.

In the right circumstances, a TRIS can be highly advantageous, but like any scheme, it may not be suitable for everyone. It is essential that you speak with your financial adviser before making any commitments. A problem occurs when you’re withdrawing more from your TRIS than your investments and contributions are generating. When this happens, your retirement balance may decline over time. Secondly, unlike retirement-phase pensions, investment earnings within a TRIS generally remain subject to tax within the super fund until a full condition of release has been met. Lastly, managing pension payments, contribution strategies, and withdrawal limits can add complexity. This is why many people seek professional advice before implementing a TRIS strategy.

How much super do you need for a TRIS to be worthwhile?

There is no minimum balance required to start a TRIS. The strategy generally becomes more effective when a meaningful super balance is available. As a broad guide:

• Under $100,000: Benefits may be limited.
• $200,000–$300,000: Can provide useful supplementary income.
• $400,000–$600,000: Often creates greater flexibility and planning opportunities.
• $750,000 and above: May provide significant retirement income support while maintaining long-term retirement objectives.

For example, a $300,000 TRIS balance could yield annual payments of $12,000 to $30,000, while a $600,000 balance could yield $24,000 to $60,000 annually under current rules.

However, balance size alone doesn’t determine whether a TRIS is appropriate. Other important considerations include:

• Your age and retirement timeframe.
• Current income and tax position.
• Planned working hours.
• Existing super contributions.
• Investment strategy.
• Retirement income objectives.

The most effective TRIS strategies are tailored to individual circumstances and form part of a broader retirement plan.

Like most financial strategies, the benefits depend on your personal circumstances. Seeking professional advice is recommended to determine whether a TRIS aligns with your retirement goals and ensure you’re making the most of the opportunities available through your superannuation.

AFPG has the expertise to guide you in wealth accumulation and protection. We’ve helped hundreds of Australians, singles, couples and families make informed decisions that enable them to live a lifestyle of their choosing.

Contact us today for experienced, compassionate, and professional financial advice.