Turning Super into Retirement Income: What Happens When You Stop Working?

For decades, super has been something that happens in the background, money goes in each payday, and the balance quietly grows. Then the payslips stop, and the question changes: how does that balance turn into retirement income you can actually live on?

Reaching retirement does not automatically flip a switch. There are decisions to make about when to access your super, how much to withdraw, how it stays invested and how it works alongside the Age Pension. The right approach can make your money more flexible, tax effective and sustainable. The wrong one can create unnecessary tax, excessive investment risk or the nagging fear of running out.

Your super does not automatically become retirement income

While you are working, your super sits in an accumulation account. When you retire, there are three broad paths: leave the money where it is, withdraw some or all of it as a lump sum, or move some or all of it into a retirement income stream such as an account-based pension. There is no single option that suits everyone, it depends on your age, income needs, other assets, tax position and health.

Timing matters too. Access depends on meeting a condition of release. For anyone approaching retirement now, preservation age is 60, and from age 65 super can be accessed whether you are still working or not. The rules get more complicated if you are winding back your hours or returning to work after retiring, which is why the transition is worth planning early, the timing of a withdrawal or pension commencement can affect tax, cash flow and Centrelink entitlements.

The most common choice: an account-based pension

An account-based pension converts part of your super into a regular income stream. You can generally choose how much to transfer in, how much income to draw each year (subject to minimums), how often payments arrive and how the money is invested.

The account stays invested, so the balance rises and falls with markets, it is not a guaranteed income for life. The pension continues until the balance is exhausted. For many retirees, the flexibility is the appeal: draw more in the years you travel or renovate, less when spending settles down. But the flexibility that makes these pensions attractive is the same thing that lets people run them down too fast. Drawing heavily during poor investment markets, in particular, can significantly shorten the life of the account.

Once the pension starts, a minimum amount generally has to be withdrawn each financial year, based on your age and the balance at 1 July:

Age	Minimum annual withdrawal
Under 65	4%
65–74	5%
75–79	6%
80–84	7%
85–89	9%
90–94	11%
95 or older	14%

These are minimums, not recommended spending targets. A $600,000 account-based pension held by someone aged 65 to 74 would generally require a minimum withdrawal of $30,000 for the year.

What happens to tax on your retirement income?

A common assumption is that everything becomes tax free the day you retire. It is close, but not automatic. For most people aged 60 or over, payments from a taxed super fund are tax free when received, and investment earnings inside a retirement phase pension are generally tax free as well. Tax may still apply to withdrawals made before age 60, untaxed super funds, certain defined benefit pensions, investment income held outside super, and amounts above the applicable limits.

The transfer balance cap which is $2.1 million from 1 July 2026 also limits how much can be moved into retirement phase, which means it is not always appropriate to shift every dollar of super into a pension account straight away.

Your retirement income and the Age Pension

Super is only one part of the picture. If you qualify, the Age Pension may supplement your income. Eligibility depends on your age, assets, income and relationship status, and an account-based pension counts under both the income test and the assets test. Even if you are not eligible today, that can change as balances reduce or circumstances shift.

In conversations with pre-retirees, the way an account-based pension interacts with Centrelink comes up as easily the most misunderstood part of retirement planning. A retirement plan needs to consider super, pension withdrawals, cash and term deposits, personal investments, the family home, debts and Centrelink entitlements together, taking an arbitrary amount each year can produce a poor result if it ignores how the pieces interact.

The same thinking applies to lump sums. Repaying a high interest mortgage may make sense for some people, but withdrawing a large amount simply because it has become available can mean lower earnings outside super, lost tax advantages and unintended Age Pension or estate planning consequences. The better question is not "how much can I take?" but "what does this money need to do?"

The decisions that matter most before you finish work

You do not need to stop work completely before changing how you use your super. A transition to retirement strategy may allow someone who has reached preservation age to draw a limited income while continuing to work. The tax treatment and withdrawal limits differ from a retirement phase pension, though, and it is not a default strategy simply because you have turned 60.

Before your last day of work, it is worth being clear on how much income you need each year, which expenses are essential, how much to hold in cash, what investment mix suits you, how withdrawals interact with the Age Pension, whether debt is best repaid first, and whether your beneficiary nominations, will and powers of attorney are current.

The goal is not to maximise the number sitting in super. It is to turn your super, investments and other resources into an income strategy that supports the life you want, with a plan for adjusting it as life changes. If you are within a few years of finishing work book your free 10-minute Discovery Call at hunterfp.com.au.

Frequently Asked Questions

When can I access my super in Australia? For anyone approaching retirement now, super can generally be accessed from age 60 after permanently retiring, or from age 65 even if you are still working. Limited conditions of release, such as permanent incapacity or severe financial hardship, may apply earlier.

Are withdrawals from super tax free after age 60? Generally, yes. Pension payments and lump sums from a taxed super fund are usually tax free when received from age 60. Exceptions include untaxed funds (often older public sector schemes) and certain defined benefit pensions, and investment income held outside super remains taxable.

How much do I have to withdraw from an account-based pension? A minimum percentage of the account balance generally has to be withdrawn each financial year, starting at 4% for people under 65 and rising with age to 14% from age 95. The minimum is calculated on the account balance at 1 July each year.

Does an account-based pension affect the Age Pension? Yes. An account-based pension is assessed under both the Centrelink income test and the assets test, so the amount you hold and the way you draw it can affect Age Pension eligibility and payment rates.

Figures referenced in this article are current as at the date of publication and may be subject to change.

This article contains general information only and does not take into account your personal financial situation, needs or objectives. Before acting on any information, you should consider whether it is appropriate for you.