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July 5, 2026 — 5:00am
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For pretty much our entire working life, we’re at least partially aware of our super. We know it comes off our paycheck and gets tucked away, slowly appreciating over time and transforming from a mere caterpillar into a big beautiful butterfly.
We do this with the anticipation of living high on the hog once we retire, or at least living somewhat comfortably on the hog. But when it comes to how our super works in retirement, many Australians’ understanding falls woefully short.
For example, did you know once you retire, your super continues to grow and earn just like it did when you were working? If you did, that’s great, but countless soon-to-be retirees don’t, believing that whatever sum it is once you hang up your boots, that’s all you’ll have to live off.
What’s the problem?
This misconception, along with a raft of others, has been a key focus of the government and super funds over recent years, with efforts made to improve education for pre-retirees, including a set of reforms.
A report from the Super Member’s Council from earlier this year found a typical retiree could be missing out on $6500 a year due to the complexity and poor understanding of the retirement phase of super. For example, the report found over 700,000 retired Australians still had their super in accumulation phase, costing them hundreds of dollars in tax each year.
What you can do about it
So if you’re confused about the retirement phase of super, or just want to brush up on your knowledge, read on:
- What happens to your super once you retire? Once you retire and stop work, you will no longer receive super payments. You then need to make some choices. If you really want to – if you don’t need the money, for example – you can leave your super in accumulation mode, which is what it’s in during your working life. Earnings in this mode will be taxed at 15 per cent. However, most retirees choose to move their super into the pension/retirement phase, where neither the earnings nor income are taxed, and you can start to access your money. You can transfer a maximum of $2.1 million into this phase, known as the transfer balance cap, with any excess remaining in accumulation. When it comes to pension phase super, Renae Vercoe, financial adviser at Money Mode, says there’s a crucial thing to keep in mind: “People often think they need to accumulate one big pot of money that slowly disappears in retirement, rather than understanding that, for many people, their money remains invested and continues working for them for another 20 or 30 years,” she says. “Many people assume they’ll need enough money sitting in cash to fund the rest of their lives, rather than understanding that their investments are typically still generating returns over many years.”
- How can you get it? Once you’ve decided to retire and put your fund into pension mode, you’ll need to decide how you want to receive it. And yes, you must draw down on it, with the government imposing a minimum draw down rate starting at 4 per cent at age 65 and scaling up to 14 per cent by age 95. The two options considered by most retirees are to start having your super paid out as a tax-free income stream or to receive it as a lump sum. “One of the biggest misconceptions is that you have to choose one or the other,” Vercoe says. “In reality, retirees can start an account-based pension for regular income while still keeping the flexibility to draw lump sums when needed − for example, to replace a car, renovate or fund a holiday.” Taking out a lump sum does not mean taking out all your super, and the amount you draw as a pension is also variable – as long as it’s not less than the minimum. One final option that is getting more traction recently is putting your money into an annuity. This is a financial product where you invest a lump sum from your super, and in return, receive a regular, guaranteed income for the rest of your life, which can also be done in tandem with drawing a pension.
- How should it be invested? Another common misconception about super in retirement is that you should invest it as conservatively as possible to make it last as long as possible. This often sees retirees allocate too much of their super to cash, which Vercoe warns can mean your earnings won’t keep up with inflation. However, going hell for leather on high-growth assets isn’t wise either, as big market swings can hurt your balance significantly. A good balance is key between conservative assets and growth ones, as given you could live for another 20–30 years, you want your super to be growing during that time. “I often tell clients that super is not an investment itself; it is a tax-effective structure for holding investments,” Vercoe says.
- Can you still add to it? Finally, just because you’ve retired doesn’t mean you have to stop adding to your super. In fact, additional contributions in retirement or in the lead up to it can be some of the best ways to boost your balance for the rest of your life. Until you hit age 75, you can make almost all types of contributions to your super fund, including non-concessional (capped at $130,000 a year) and concessional (capped at $30,000 a year), and you can use unused caps from the past five years if your super balance is under $500,000. From age 67 to 75, if you want to claim a tax deduction for a personal super contribution, you’ll have to meet the work test, which requires you be gainfully employed for at least 40 hours during a consecutive 30-day period over the financial year. If you’re over 75, the only type of super contribution that can be made are compulsory employer contributions and downsizer contributions.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
