Phased retirement involves years of shifting income from employment to super to the Age Pension. Key tools include a TRIS to bridge income from preservation age while still working, continued concessional contributions where income permits and TSB allows carry-forward, and the Work Bonus to reduce the income test impact of part-time earnings past 67. Coordinating these deliberately produces materially better outcomes than improvising each year.
The traditional retirement model — working full-time until a specific date, then stopping completely — fits fewer Australian workers than it used to. For those in professional services, consulting, knowledge work, or owner-operated businesses, the capacity to reduce hours gradually over several years rather than retiring on a single date creates real options. Phased retirement, as this pattern is commonly called, involves its own financial structure: a changing income mix across employment earnings, superannuation, and eventually the Age Pension, coordinated over what may be a five-to-ten-year transition. Understanding that structure allows the transition to be planned rather than improvised year by year.
What does phased retirement typically look like in practice?
The pattern takes different forms depending on the work. For an employee, it often means moving from full-time to a reduced number of days over successive years — five days to four, then to three, then stepping back entirely. For a consultant or knowledge worker, it may mean moving from a salaried role to project-based work at a reducing pace. For a business owner, it typically involves a longer handover process: stepping back from day-to-day management, consulting on specific matters, and ultimately exiting. Most phased transitions unfold over two to seven years. The pace depends on employer flexibility, health and energy, financial circumstances, and personal preference.
How does the income mix change during a phased retirement transition?
During a phased transition, income typically comes from several sources simultaneously, with the mix changing each year. Employment income continues, though at reduced levels as hours fall. Superannuation income can be added once preservation age (currently 60 for anyone born on or after 1 July 1964) is reached. The Age Pension becomes available from age 67, subject to the means tests. Throughout the transition, super contributions may continue from employer and personal sources.
The result is a ramp of income transitions rather than a clean switch. In the early phasing years, employment income remains the primary source. In the middle years, the mix of employment and super income balances. In the later years, super income and the Age Pension carry more weight as employment income reduces toward zero. Managing this transition deliberately — rather than simply observing it as it happens — allows it to be structured for tax efficiency, Centrelink optimisation, and financial sustainability.
How does a Transition to Retirement Income Stream work as a bridge during phasing?
The Transition to Retirement Income Stream (TRIS) is a product specifically designed for the phased retirement pattern. Available from preservation age (60), it allows drawdown from super while the member is still working, without requiring them to have met a condition of release such as retirement. For a worker in their early sixties reducing to three days a week, a TRIS pension can supplement the reduced employment income to maintain total cash flow, while employer super contributions and any personal contributions continue to flow into the accumulation account.
Pension payments from a TRIS are tax-free once the member turns 60, making them attractive as a supplement to employment income in higher-earning years. The tax treatment of the underlying fund, however, differs from a standard retirement-phase pension: TRIS fund earnings are taxed at 15%, compared to the 0% that applies to earnings in a pension account after a condition of release has been met (a change introduced on 1 July 2017). This means TRIS is primarily useful as an income smoothing tool during the transition, rather than as a tax-minimisation strategy.
Once a condition of release is met — typically through permanent retirement, but also through turning 65 regardless of employment status — the TRIS converts to a standard account-based pension and the earnings tax disadvantage disappears.
Can you keep making super contributions while phasing out of work?
For workers continuing to earn income during a phased transition, superannuation contributions remain available and can be effective. Employer super guarantee contributions continue at the statutory rate on whatever employment income is earned. Salary sacrifice into concessional contributions is generally available while the worker is still employed. Personal deductible contributions can be made by individuals under 75 who meet the relevant work test requirements. All concessional contributions count against the $30,000 cap (2025-26), but where a worker's total super balance is below $500,000 at 30 June 2025, unused cap from the prior five years can be carried forward and deployed in a single year, allowing larger contributions in years where income permits.
For phased retirees in their sixties with moderate super balances, continuing concessional contributions while income remains available is generally worthwhile: the 15% contributions tax is well below the marginal income tax rate at most income levels.
How does the Work Bonus help if you keep earning past Age Pension age?
For workers continuing part-time employment past Age Pension age (67), the Work Bonus is an important concession. It allows the first $300 per fortnight of employment income to be excluded from the Age Pension income test. Unused Work Bonus entitlement accumulates to a maximum balance of $11,800, which can then offset future periods of higher employment income — for example, when a consulting engagement produces a spike in income in one particular fortnight. The Work Bonus applies to genuine employment and certain self-employment income, not to investment income or pension payments.
For a phased retiree earning, say, $300 per fortnight from part-time work past age 67, the Work Bonus excludes that entire amount from the income test — meaning the part-time income has no impact on the Age Pension entitlement. At higher income levels, the $300/fn exclusion reduces the income test impact but does not eliminate it. The interaction between part-time income, the Work Bonus, the income test free area, and the taper rate determines the net pension position for each fortnight.
Why does phased retirement need coordinated year-by-year planning?
Phased retirement involves ongoing decisions across several areas simultaneously: the rate at which hours reduce and employment income falls; the timing of TRIS commencement and the level of pension drawdown; continued contribution decisions each year; the Age Pension claim timing and eligibility; and the tax implications of the changing income mix as employment income falls and pension income (tax-free) increases. No single year's decisions are made in isolation — what happens at 63 affects the position at 67.
For workers planning a phased transition, the value in structured advice is not the one-off calculation of the end-state retirement position, but the year-by-year management of the transition itself. The coordination of employment, super, and Centrelink moving together, optimised for each year's specific circumstances, produces materially better outcomes than improvising the decisions sequentially.
Key takeaways
- Phased retirement fits a wider range of workers than the traditional full-stop model. For employees, consultants, knowledge workers, and business owners, gradual reduction in hours or work pace — over two to seven years — allows the financial transition to be managed rather than abrupt. The income mix shifts across this period from primarily employment income in the early years to a blend of super and Age Pension income in the later years.
- The Transition to Retirement Income Stream (TRIS) is the dedicated tool for supplementing reduced employment income from preservation age (60) while still working. TRIS payments are tax-free once the member turns 60, but the underlying fund's earnings are taxed at 15% rather than the 0% that applies in a standard retirement pension account. TRIS is best used as an income-smoothing bridge, not a tax-minimisation vehicle. Once a condition of release is met — through permanent retirement or turning 65 — the TRIS converts to a standard account-based pension.
- Super contributions can continue throughout a phased transition. Employer SG contributions continue on employment income earned; salary sacrifice is generally available while employed; personal deductible contributions are available to age 74 (with work test) or 75 within 28 days of month-end. All concessional contributions count against the $30,000 cap (2025-26), but where total super balance is below $500,000 at 30 June 2025, unused cap from the prior five years can be carried forward and used in a single higher-income year.
- For phased retirees continuing part-time work past Age Pension age (67), the Work Bonus excludes the first $300 per fortnight of employment income from the income test. Unused Work Bonus entitlement accumulates to a maximum of $11,800, providing a buffer for fortnights with higher income — such as a consulting engagement or a short-term project. The Work Bonus applies to genuine employment and certain self-employment income, not to investment returns or pension payments.
- Phased retirement involves coordinated decisions across employment, super, and Centrelink that interact year by year. What happens at 63 affects the position at 67. The value of structured advice is not the calculation of the end-state retirement position alone, but the year-by-year management of the transition — the timing of TRIS commencement, contribution decisions as income falls, and Age Pension eligibility and claim timing — optimised for each year's specific circumstances.
Frequently asked questions
What is phased retirement and who can use it?
Phased retirement describes a gradual reduction in working hours or work pace over a period of years, rather than a single retirement date. It is available to any worker whose employer or working arrangement permits reduced hours, and to consultants, knowledge workers, and business owners who can manage the pace of their own exit. The transition typically unfolds over two to seven years. From a financial planning perspective, phased retirement involves managing an evolving income mix across employment earnings, superannuation drawdown, and eventually the Age Pension — all simultaneously.
What is a TRIS and how does it support phased retirement?
A Transition to Retirement Income Stream (TRIS) is a super pension product that can be commenced from preservation age (currently 60) without needing to have permanently retired. It allows drawdown of super while still working, providing supplementary income to offset reduced employment earnings during the phasing-down period. Payments from a TRIS are tax-free once the member is aged 60 or over. One important limitation: unlike a standard retirement-phase pension, TRIS fund earnings are taxed at 15% rather than 0%. This means a TRIS is most useful as an income bridge during the transition — not as a standalone superannuation tax strategy. Once the member permanently retires or turns 65, the TRIS automatically converts to a standard account-based pension and the tax disadvantage disappears.
Can I still contribute to superannuation while phasing down from work?
Yes — super contributions remain available throughout a phased transition. Employer super guarantee contributions continue on employment income at the statutory rate (12% in 2025-26). Salary sacrifice is generally available while the member is still employed. Personal deductible contributions can be made by individuals under 75 who satisfy the work test (at least 40 hours of gainful employment in a consecutive 30-day period within the financial year) or the work test exemption. All concessional contributions count against the $30,000 cap for 2025-26. Where a member's total super balance was below $500,000 at 30 June 2025, unused concessional cap from the prior five years can be carried forward and used in a single year — allowing a larger contribution in a year where income supports it.
How does the Work Bonus help phased retirees still earning income?
The Work Bonus applies from Age Pension age (67) and allows the first $300 per fortnight of eligible employment income to be excluded from the Age Pension income test. Any unused Work Bonus in a fortnight accumulates to a maximum balance of $11,800, which can offset higher earnings in future fortnights — useful for phased retirees whose income varies, such as consultants who have busy and quiet periods. At $300 of employment income per fortnight, the entire amount is excluded from the income test and has no impact on Age Pension entitlement. Above $300 per fortnight, the exclusion reduces but does not eliminate the income test impact, and the taper rate applies to any amount above the free area.
When does the Age Pension become available during a phased transition?
The Age Pension becomes available from age 67, subject to the assets test and income test. A phased retiree who reaches 67 while still working part-time will have both employment income and any super drawdown assessed under the income test, alongside the assets test applied to financial and other assets. The interaction of reduced employment income, super drawdown, the Work Bonus, the income test free area, and the taper rate determines the net entitlement. Some phased retirees near the thresholds will qualify for a part pension; others, with higher income or asset levels, may not qualify until hours fall further. Timing the Age Pension claim — and structuring income and assets in the approach to eligibility — is one of the key coordination decisions in a phased transition.