A retirement drawdown strategy is the plan for how you will withdraw income from your super, personal investments, and government entitlements — in what amounts, from which accounts, and in what order — to maximise tax efficiency, Age Pension entitlements, and the longevity of your retirement savings.
The Key Questions in Drawdown Planning
- How much to draw: Enough to fund lifestyle expenses while preserving capital
- From which account: Super pension, personal investments, or both — in what order?
- In what form: Account-based pension income stream, lump sum commutations, dividends, or rental income
- How to manage the Age Pension interaction: Ensuring drawdowns don’t unnecessarily reduce Age Pension entitlements
- How to manage tax: Maintaining efficiency between tax-free super and taxable personal investments
Drawdown Order — Which Assets First?
The order in which you draw from different asset pools affects your overall tax position and Age Pension entitlement:
General framework
| Priority | Asset type | Rationale |
|---|---|---|
| 1st | Personal (taxable) investments | Drawn first — earnings are taxed outside super. Reducing taxable assets may improve Age Pension |
| 2nd | Super pension (account-based pension) | Tax-free (age 60+), 0% earnings tax. Let this grow as long as possible |
| 3rd | Super accumulation | Not in pension phase — earnings taxed at 15%. But below Age Pension age, not assessed by Centrelink |
Exception: If your super accumulation is not assessed by Centrelink (because your partner is under pension age), there may be reasons to draw from super accumulation first to reduce the assessed balance at the point when your partner reaches pension age.
This is complex and highly individual — professional advice is strongly recommended.
Minimum vs Maximum Drawdown
Super pension accounts have mandatory minimum annual drawdowns:
- Age 67: 5%
- Age 75: 6%
You must draw at least the minimum. Many retirees draw close to the minimum — allowing the balance to continue growing in the tax-free pension environment.
Should you draw more than the minimum?
Consider drawing more than the minimum if:
- You have other taxable income (personal investments, rental income) — drawing more from tax-free super may be more efficient than drawing from taxable sources
- Your super balance will exceed the Transfer Balance Cap if it keeps growing — consider drawing more now
- You want to reduce your assessable assets to improve Age Pension entitlement over time
Flexible Drawdowns in Volatile Markets
A key advantage of account-based pensions over fixed annuities is flexibility. In years of poor market performance, you can:
- Draw the minimum only (reducing the amount sold from a declining portfolio)
- Draw from cash reserves (Bucket 1) rather than selling growth assets
- Reduce discretionary spending temporarily
This flexibility is a meaningful tool for managing sequence of returns risk.
The Transfer Balance Cap and Drawdown
The Transfer Balance Cap ($1.9 million) limits how much can be in tax-free pension phase. If your pension balance grows above the cap due to investment returns (which it can, once transferred in), the earnings on the growth above cap are not automatically moved — but any future transfers back to pension phase from accumulation are limited.
To manage large balances: higher drawdowns from pension phase reduce the balance over time, potentially allowing further top-ups from accumulation later. This is complex — specialist advice is warranted.
Related Articles
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- Age Pension and Super Strategy Australia
- Retirement Income Strategy Australia
- Retirement Investing hub
Frequently Asked Questions
Should I draw from super or sell investments first in retirement? For most Australians aged 60+, drawing from super (tax-free in pension phase) while letting personal investments continue to earn taxable income is generally not optimal — personal investments are taxed at marginal rates. Drawing from personal taxable investments first (to reduce taxable income and assessable Centrelink assets) while the tax-free super environment continues working for you is often more efficient. However, this depends heavily on individual circumstances.
Can I vary my pension drawdown from year to year? Yes. You must draw at least the mandatory minimum, but you can draw more in any year. You can also request one-off lump sum withdrawals (commutations) from your pension account for specific needs — subject to the minimum and Transfer Balance Cap rules.
What happens if my super runs out? If your account-based pension is exhausted, you will rely entirely on the Age Pension (if eligible) and any other income sources. The Age Pension provides a safety net for those who exhaust their super. This is why sustainable drawdown rates matter — drawing too much too early permanently increases the risk of running out.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser through the ASIC financial advisers register or MoneySmart.