Super and Retirement Income Australia — Drawdown Guides

For most Australians, super is the primary source of retirement income alongside the Age Pension. The transition from accumulating super to drawing it down as income is one of the most important financial decisions you’ll make.

Getting the drawdown strategy right matters: draw too aggressively and you may exhaust your super prematurely; draw too conservatively and you leave money unspent that could have improved your retirement quality.

The Account-Based Pension (ABP)

The most common way to draw retirement income from super is through an account-based pension (also called an allocated pension or account-based income stream). When you retire and meet a condition of release:

1. You convert your super accumulation account to an account-based pension
2. Your balance continues to be invested and earn returns
3. You draw regular income payments (monthly, quarterly, or annually)
4. The investment earnings within the pension account are tax-free
5. Withdrawals are tax-free after age 60 from a taxed super fund

The ABP account balance is yours — whatever is not drawn down can be left to your estate (or nominated beneficiaries via a death benefit nomination).

Minimum Drawdown Rates

The government requires a minimum percentage of your account balance to be withdrawn each year from an ABP. This minimum amount varies with age:

Note: The government has periodically halved these minimums during market disruptions (e.g., COVID-19 in 2020–21). Standard rates apply for FY2025–26.

There is no maximum withdrawal limit from an ABP — you can draw as much as you need from the account (up to the full balance).

How Much Do You Need to Retire?

The ASFA (Association of Superannuation Funds of Australia) publishes the ASFA Retirement Standard — widely-cited benchmarks for what constitutes a comfortable and a modest retirement lifestyle.

ASFA Retirement Standard (September Quarter 2024)

Comfortable retirement in ASFA terms means: private health insurance, regular domestic and occasional international travel, eating out regularly, a good car, recreational activities, and home improvements.

Modest retirement means: better than a pure Age Pension lifestyle, but still careful spending — limited eating out, inexpensive activities, minimal travel.

Super Balance Required for a Comfortable Retirement

ASFA estimates the super balance required at retirement (age 67) to fund a comfortable lifestyle (assuming full receipt of the Age Pension once eligible):

• Single: ~$595,000
• Couple: ~$690,000 (combined)

These figures assume drawing down the super balance and receiving the Age Pension once it phases in. The amounts are somewhat counterintuitive — a comfortable retirement does not require millions in super, because the Age Pension provides a base income for those with moderate balances.

Longevity Risk — Making Super Last

Longevity risk is the risk of outliving your super. The average life expectancy for a 65-year-old Australian is approximately 84 for men and 87 for women. Many Australians will live into their 90s.

A 67-year-old retiree may need to fund 20–25+ years of retirement income. Key strategies for managing longevity risk:

Maintain a growth allocation in early retirement. Many retirees shift to very conservative investments in the pension phase, but holding too many defensive assets increases the risk of the portfolio failing to keep pace with inflation and drawings. A retirement portfolio at 65 may still have a 20-year investment horizon — some growth exposure is generally appropriate.

Draw at sustainable rates. The “4% rule” (drawing no more than 4% of the initial portfolio per year, adjusted for inflation) is a US-derived guideline. In the Australian context with Age Pension access, drawdown rates can be somewhat higher without exhausting the balance, particularly if Age Pension eligibility kicks in as the super balance depletes.

Understand the Age Pension interaction. As your super balance declines, your Age Pension eligibility may increase under the assets test (assets below $1,038,000 for a homeowner couple partially qualify). This natural interaction between super and the Age Pension effectively extends the life of the super balance.

Consider annuities for a guaranteed income floor. A lifetime annuity (or term certain annuity) provides guaranteed income regardless of investment returns or how long you live. Major providers include AustralianSuper, Lifetime, Challenger, and others. Annuities involve permanently committing capital but provide certainty.

Sequencing Risk — The Timing of Market Returns

Sequencing risk is the risk that poor investment returns early in retirement permanently damage your retirement income, even if average long-run returns are similar.

Example: Two retirees each start with $600,000 and draw $30,000/year. Retiree A experiences a 30% market drop in year 1; Retiree B experiences the same drop in year 15. Retiree A’s balance is far more severely impacted because withdrawals during the down period magnify the effect of the loss. Retiree B’s balance has had 14 years of growth to buffer the same shock.

Managing sequencing risk:

• Hold 1–2 years of living expenses in cash or short-term bonds within the pension account — this “bucket” can be drawn during market downturns without selling growth assets at depressed prices
• Reduce growth allocation in the 5 years approaching and just after retirement — this is when sequencing risk is highest

Frequently Asked Questions

Do I have to draw from super in retirement if I have other income? You must meet the minimum drawdown from an account-based pension — the government sets this minimum. You can draw more, but not less. If you don’t need the income, you cannot reinvest it back into super once you are in full pension phase (though there are specific rules about this for people under 75).

Can I keep contributing to super after retirement? Yes, with conditions. After 60, you can continue to contribute to super from employment income if you’re still working. From age 75, most contribution types are no longer permitted. Non-concessional contributions from age 67 require a work test (you must work at least 40 hours in 30 consecutive days during the income year).

Is the Age Pension means-tested against my super? Yes — super is assessed under both the income test and the assets test for the Age Pension. Super accumulation accounts are assessed once you reach Age Pension age (67). Account-based pensions are assessed using the deeming rate applied to the balance. A financial adviser can help model the interaction between super and Age Pension eligibility.

Retirement Income Guides

• Drawdown Basics — Understanding Super Drawdown
• Account-Based Pension — How It Works
• Retirement Income Decisions — Account Based Pension vs Annuity
• Tax on Retirement Income from Super
• What Your Super Fund Owes You in Retirement
• How Much Super Do I Need to Retire?
• Age Pension Eligibility and Super

For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.

The Two-Bucket Retirement Strategy

A practical approach many retirees adopt is the “bucket” strategy — dividing retirement assets into distinct pools for different time horizons:

Bucket 1 — Short term (0–2 years): Cash and short-term term deposits. This bucket covers 1–2 years of living expenses and is not subject to investment risk. During market downturns, you draw from this bucket rather than selling growth assets at depressed prices.

Bucket 2 — Medium term (3–10 years): Conservative to balanced investments. Bonds, diversified income funds, property trusts. This bucket refills Bucket 1 periodically, and the 3–10 year horizon provides some insulation from short-term volatility.

Bucket 3 — Long term (10+ years): Growth assets — shares, growth ETFs. This bucket is allowed to grow without drawing on it for a decade or more, maximising the benefit of compounding and recovering from any short-term market falls.

The two-bucket or three-bucket approach is not a formal product — it’s a mental model for managing sequencing risk while maintaining growth exposure through a potentially 25-year retirement.

Centrelink Interaction — Working the Asset Test

As your account-based pension balance draws down, you may move from not qualifying for the Age Pension to qualifying for a part-pension, and eventually to a full pension. Understanding the asset test thresholds helps you plan drawdown timing.

For a homeowner couple, the full Age Pension cuts out around $1,038,000 in assets (including super) and the part-pension applies below about $1,038,000 down to the full pension threshold. A financial adviser can model the optimal drawdown rate to balance capital preservation with Age Pension eligibility optimisation.

← Back to Superannuation