How you draw down your super in retirement — in what order, from which accounts, and at what rate — can significantly affect how long your money lasts and how much tax you pay. This article explains the main strategies Australian retirees use.
Understanding Your Drawdown Options
Once you satisfy a condition of release (typically retirement at preservation age or age 65), you have three main ways to access your super:
| Method | Description | Tax |
|---|---|---|
| Lump sum | Withdraw all or part of the balance as a single payment | Tax-free after 60 |
| Account-based pension (ABP) | Transfer balance to pension phase; draw regular income | Tax-free (investment earnings and payments) after 60 |
| Combination | Keep some in accumulation, transfer rest to ABP | Mixed — see below |
For most retirees, the account-based pension is the most tax-efficient structure, as investment earnings in pension phase are completely tax-free (unlike accumulation phase, where earnings are taxed at 15%). The transfer balance cap ($2.0M in FY2025–26) limits how much can be in pension phase.
Strategy 1 — Minimum Drawdown Only
Withdraw only the ATO-mandated minimum drawdown percentage each year. This preserves capital for longer and keeps more assets in the tax-free pension environment:
| Age | Minimum Drawdown Rate |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90+ | 11–14% |
Best for: Retirees with other income sources (Age Pension, rental income, part-time work) who want to maximise the period of tax-free growth inside the pension fund.
Limitation: The minimum drawdown increases with age — eventually, the mandatory withdrawals may exceed what you need to spend, forcing you to hold excess cash outside super.
Strategy 2 — Sustainable Rate Drawdown (4% Rule)
The “4% rule” (from US research) suggests drawing approximately 4% of your balance per year — roughly sustaining your purchasing power over a 25–30 year retirement if your portfolio grows at around 6–7% per year.
Example: $600,000 balance → $24,000/year drawdown from super (plus Age Pension supplements)
This approach doesn’t perfectly apply in Australia (due to the compulsory minimum drawdown increasing with age, and the Age Pension providing an income floor), but it provides a useful rough guide for sustainable withdrawal rates.
Strategy 3 — Bucket Strategy
Divide your retirement assets into “buckets” based on time horizon:
| Bucket | Time Horizon | Assets | Purpose |
|---|---|---|---|
| Bucket 1 (Cash) | 0–2 years | Cash, term deposits | Living expenses — not subject to market fluctuation |
| Bucket 2 (Defensive) | 2–7 years | Bonds, conservative super | Refill bucket 1; moderate growth |
| Bucket 3 (Growth) | 7+ years | Growth super option, shares | Long-term capital growth; replenishes other buckets |
Benefit: Psychological — knowing living expenses are covered for 1–2 years removes the temptation to panic-sell growth assets during market downturns.
Limitation: Holding significant cash reduces overall portfolio return. The strategy’s effectiveness depends on disciplined rebalancing.
Strategy 4 — Draw Super Before Age Pension; Preserve Other Assets
Because the Age Pension assets test excludes the family home, some retirees:
- Draw down super balances faster in their 60s (while assets are below the Age Pension cut-off), then
- Become eligible for a full or part Age Pension in their 70s when the balance is lower
This sequencing can be complex and depends on individual circumstances, assets, and future Age Pension rules. It requires careful modelling — particularly because Age Pension thresholds and deeming rates can change.
Strategy 5 — Account-Based Pension + Lump Sum Combination
Rather than placing everything in an account-based pension, some retirees:
- Place the transfer balance cap amount ($2.0M) into pension phase (earning returns tax-free)
- Keep the rest in accumulation phase (earnings taxed at 15%)
- Take occasional lump sums from accumulation to supplement ABP income
This works for high-balance retirees who cannot fit their full balance inside the transfer balance cap.
Age Pension Interaction — Plan Your Drawdown Around It
The Age Pension is means-tested via both an assets test and an income test (whichever produces the lower pension). Super assets in pension phase are counted under the assets test and subject to deeming under the income test.
Key ages to plan around:
- Age 60: Super withdrawals become tax-free (for taxed funds); TTR strategy possible
- Age 67: Age Pension eligibility begins; assets test and income test interaction becomes critical
- Age 75: Minimum drawdown rate increases to 6%; non-concessional contributions no longer possible
See Super and the Age Pension — How They Interact.
Tax Planning in Drawdown
- After 60: All lump sums and pension payments from a taxed fund are completely tax-free — no need to manage the timing or amount for tax purposes
- Before 60: The tax-free component and taxable component of your super determine the tax treatment — see Tax on Super Withdrawals
- Recontribution strategy: Before retirement, some members withdraw and recontribute to shift the taxable component to tax-free — benefiting estate planning (reducing tax on death benefits paid to non-dependants)
For further reading: How Long Will My Super Last — Drawdown Calculator, Account-Based Pension Explained, How to Make Your Super Last. For advice on your retirement income strategy, speak with a licensed financial adviser through MoneySmart.