By Philippa Billings, Chief Advice Officer, Otivo
Burnout at 62 has a particular flavour. The finish line is close enough to see, the work is no harder than it was at 45, and yet the tank is empty — and the reason people keep going is almost always the same one. They assume that cutting their hours by 40% cuts their household income by 40%. It doesn't, and the gap between those two numbers is one of the more useful pieces of arithmetic in the years before retirement. Here's how the sums actually fall, and what tends to close the difference.
Cutting back to three days a week at 62 reduces gross pay more than it reduces income. The hours given up sit in the highest marginal bracket, and from age 60 transition to retirement pension payments from a taxed source are tax free. As at August 2026, the ATO limits TTR drawdowns to between 4% and 10% of the account balance a year.
How much income do you actually lose by dropping to three days a week?
Less than the payslip suggests, because the hours you give up are the ones taxed hardest.
Take someone earning $120,000 who moves from five days to three. Gross pay falls to $72,000 — a cut of $48,000. But that $48,000 slice sat entirely inside the 30% marginal tax bracket, which the ATO applies to income between $45,001 and $135,000, plus the 2% Medicare levy. Roughly 32 cents in every one of those dollars was never reaching the bank account.
So the real reduction in take-home pay is closer to $32,600 than $48,000. Two days a week of work, in that example, is buying about $627 a week after tax. That's a real number and a meaningful one, but it's a third smaller than the gross figure most people do the sums on at the kitchen table.
This is the single most misread number in semi-retirement. The decision gets made against the gross pay cut, when the gap that actually needs filling is the after-tax one.
What can close the gap between the hours and the income?
The gap gets closed from a combination of sources rather than a single one, and the mix is what makes each household's version different.
For many Australians approaching this decision, the components look like this.
The four levers in a semi-retirement plan
- Hours — how many days, and whether they're negotiable up or down later. Some people find a four-day step is enough, others go straight to three.
- Super drawdown — from preservation age, which is 60 for everyone, super can be drawn as a transition to retirement pension while still working.
- Non-super income — rent from an investment property, share dividends, interest, or income from a partner still working full time.
- Spending — the commute, the work wardrobe, the bought lunches and the second car all shrink with the hours, and that reduction is genuine even though it never appears on a payslip.
Where does a transition to retirement pension fit?
A transition to retirement pension is the lever most people don't know they have. It's an income stream started from super after reaching preservation age, while still working — no retirement, no resignation, no change of employer required. The ATO permits drawdowns of between 4% and 10% of the account balance each financial year.
The feature that matters at 62 is the tax treatment of the payments. From age 60, pension payments from a taxed source are tax free and aren't included in assessable income. That's why the after-tax gap is the number to work with. Closing a $32,600 after-tax gap takes $32,600 of tax-free pension income — which, at the 10% maximum drawdown, would call for a pension account of around $326,000.
One caution worth stating plainly, because it's the detail most often skipped. Inside the fund, earnings on assets supporting a TTR pension are still taxed at up to 15%, the same as accumulation phase. The earnings tax exemption only arrives when the pension moves into retirement phase, which happens on full retirement or at 65. The mechanics are set out in our piece on [LINK: what a transition to retirement pension is and how it works].
What does drawing on super early actually cost?
Every dollar drawn at 62 is a dollar that isn't invested for the years after.
In the example above, drawing $32,600 a year from 62 to 67 takes about $163,000 out of the balance, before accounting for the earnings those funds would otherwise have generated. There's a second, quieter effect too. Super guarantee is 12% of ordinary time earnings, so a salary falling from $120,000 to $72,000 also cuts employer contributions from $14,400 to $8,640 a year — around $5,760 less going in, at the same time as money is coming out.
None of that makes the trade a bad one. It makes it a trade. For context on the destination, the ASFA Retirement Standard puts the lump sum for a comfortable retirement at 67 at $630,000 for a single homeowner and $730,000 for a couple. Whether a five-year drawdown still lands inside that range is exactly the kind of question worth modelling before hours are handed back rather than after.
What else changes when you reduce your hours?
Four things tend to move at the same time as the salary, and they're easy to miss in the excitement of a better week.
- Insurance inside super. Cover attached to an accumulation account can be affected if the balance is rolled into a pension account or reduced. Terms vary between funds, so the fund's own product documentation is the reference point.
- Leave and entitlements. Annual and long service leave generally accrue pro rata, and existing balances are usually preserved at the rate they were earned. That's an employment question for HR rather than a super one.
- Contribution room. Salary sacrifice and personal deductible contributions count towards the same annual limit as employer super guarantee — one combined concessional contributions cap, $32,500 for 2026–27. Dropping hours reduces SG, which frees up room inside that combined cap. How that interacts with a TTR pension is covered in [LINK: how a TTR strategy works alongside salary sacrifice].
- Age Pension timing. Age Pension age is 67, and eligibility is subject to the income and assets tests published by Services Australia. Semi-retirement at 62 sits five years short of that, so the years in between are self-funded by definition.
Frequently asked questions
Do you have to reduce your hours to start a transition to retirement pension?
No. There's no requirement to change your working arrangements at all. The rules were designed to make reduced hours possible without reduced income, but nothing obliges a member to use them that way.
Can you start a TTR pension at 62 if you've never contributed extra to super?
Generally yes. Eligibility depends on reaching preservation age and having a super balance to start the pension from, not on any history of voluntary contributions.
Is income from a rental property treated the same as pension income?
No. Rental income is assessable income and taxed at marginal rates, while TTR pension payments from a taxed source are tax free from age 60. That difference changes how much of each is needed to fill the same after-tax gap.
Can you go back to full time after cutting your hours?
That's an employment matter rather than a super one, and it depends on the arrangement reached with the employer. On the super side, a TTR pension can generally be commuted back to accumulation phase, subject to the fund's rules.
Where this leaves you
The question isn't really whether three days a week is affordable. It's what the after-tax gap actually is, which levers are available to close it, and what those levers cost over five years. Those are all numbers, and numbers can be looked at before anything is signed. Otivo, a licensed Australian financial advice platform holding AFSL and Australian Credit Licence No. 485665, has a retirement planning module that brings age, salary, super balance, other investments and super access age into a single view — which is where a semi-retirement idea turns into a set of figures you can weigh up.
Sources
- Australian Taxation Office — individual income tax rates, transition to retirement, tax on super income streams, and contributions caps — ato.gov.au
- Association of Superannuation Funds of Australia — ASFA Retirement Standard — superannuation.asn.au
- Services Australia — Age Pension age, income and assets tests — servicesaustralia.gov.au
Disclaimer
The information in this communication is current as at August 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.