Using your super – making informed decisions in retirement

Superannuation may be a ubiquitous part of the Australian retirement landscape but its role in an individual’s retirement is profoundly personal.

While all working Australians contribute to super during their working lives , the way we access and use those funds in retirement varies dramatically depending on each of our individual circumstances.

There is no one best way to use super in retirement that suits everyone – and before you choose the right path for you, it is important to take the time to understand your goals, needs, preferences, and circumstances.

Understanding super withdrawal options in retirement

Effectively managing your super to support your retirement requires a strategic approach to withdrawals. From taking out all or some of your super benefits as a lump sum, setting up a regular income stream, or leaving it untouched to grow further, the choice of how you use your retirement savings is ultimately up to you.1

But there are some important principles and taxation considerations to consider for each approach.

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Lump sum withdrawals

Taking a lump sum from super can offer immediate access to substantial funds which can be used for paying down debt or making investments. For people over 60, lump sum withdrawals are generally tax free.2

It is important to remember that once you take a lump sum out, you may not be able to put it back into super if you change your mind.3 This can have consequences on the future growth of your retirement funds as earnings on investments in super are generally taxed at a lower rate than earnings on investments outside super.4

Income streams

An income stream, or pension, is a series of periodic payments made from a super fund to a member.5  Payments must be made at least annually and meet minimum payment amounts which are set as a percentage of the balance and rise as you age.

Income streams provide a regular source of income, helping with budgeting and financial planning throughout retirement.

Typically, income streams are tax-free for people aged over 60.6 Earnings and capital gains on the super assets underlying the income stream are also tax free on super balances up to the value of the transfer balance cap, currently set at $1.9 million.7

There are two main types of income streams available:

Account-based pension: a series of regular payments sourced from your super money.8 Account-based pensions are a flexible way to access your super savings that allow you withdraw variable amounts as desired so long as minimum payment amounts are met. This flexibility allows you to make larger withdrawals as needed but carries risk: market fluctuations can affect your super balance and there is no guarantee your savings will last through your retirement.9

Annuity: a fixed income for the rest of your life or a set period.10 The main providers of annuities are life insurance companies11 and are available through wealth management platforms like BT Panorama. Annuities offer security of income that is typically not dependent on market performance. Lifetime annuities provider regular income until death and can include the option to continue payments after death to a nominated beneficiary.

Setting retirement goals

Making choices in retirement is a deeply personal process. Working with a financial adviser can help, but here are some things to consider as you plan:

Goals and priorities: Retirement goals vary widely among individuals – some dream of travelling the world, others focus on hobbies, helping children and grandchildren, or leaving a legacy for loved ones. Understanding your own personal aspirations is a good first step to ensuring your financial plan supports a fulfilling retirement.

Risk tolerance and time horizon: Your comfort with risk and the timeframe over which you plan to use your retirement funds are an important factor in planning how you use your super. By taking time to consider how long your funds might need to support you and how you might ride out market downturns you can make spending choices that maximise your comfort while preventing shortfall.

Health: Your planning needs to account for both rising healthcare needs in retirement and the possibility that you might live longer than average. Healthcare costs in Australia are generally well subsidised by governments,12 but allocating funds for unexpected health expenses can keep you on track, while having a strategy for the possibility of outliving your funds can ensure continued security.

Making informed decisions

A successful retirement comes from making informed decisions about how to access and use your super savings in the way that best suits your individual needs. This comes in two parts:

Seeking professional advice: The complexities of superannuation require expertise and financial advisers play a crucial role in helping you understand the various options for accessing your super. The guidance of a trusted adviser can ensure that your choice aligns with your financial goals, tax implications, and retirement timeline, maximising the benefits of your accumulated funds.

Regular reviews:
As your retirement progresses, your needs and the external economic and markets environment will inevitably change. Regularly reviewing your strategy is essential. This may involve reassessing withdrawal rates, changing how you have structured your income streams, or adjusting your investment choices based on market conditions or changes in your personal circumstances.

Combination strategies

A financial adviser can help you decide how to withdraw your money from super in a way that both meets your goals and provides you with a balance of flexibility and security.

There is no one correct approach. You may choose to withdraw a lump sum to cover immediate large expenses such as paying off a mortgage, while also setting up an income stream to ensure steady cash flow for day-to-day expenses. You may choose to combine the flexibility of an account-based pension with the security of an annuity, allocating differing amounts of your super to each.

Seeking professional advice can help you find a balance that suits your personal circumstances to get the most out of your retirement savings.

If you have started considering what retirement might mean for you or if you are working on a plan for a great future, we can help you to understand what you need to think about.
As we age, the possibility of requiring aged care services becomes an increasingly important consideration and one that you need to prepare for financially.
Retirement is a significant milestone and marks the beginning of a time filled with potential for personal growth, relaxation, and the pursuit of long-held interests.


Things you should know

The article was prepared by BT. BT is a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. This information is current as at 1 July 2024. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.

This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This information may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material. Any tax considerations outlined in this publication are general statements, based on an interpretation of the current tax law, and do not constitute tax advice.  The tax implications of super investments can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.