Understanding your retirement income

It is important to understand where this income will come from, how long it will last, and whether your retirement investments are on track, or whether some adjustments need to be made to get you there.

Work out how long your super or account-based pension will last

There are many variables that come into play when calculating how long your super or account-based pension will last in retirement, and it can be challenging to figure it out alone.

If you’ve transferred your super to a pension account already, then you can use the MoneySmart calculator to help estimate how long your pension will last. And if you haven’t, we can discuss different considerations with you that will impact how long your account-based pension will last.

Here are some of the fundamental things you need to know about a couple of other retirement income options.

Account based pensions

Account-based pensions are a popular retirement income product. They fluctuate in value and are linked to the market so your investment, and therefore your long-term income, isn’t guaranteed.

How long an account-based pension lasts will depend on:

  • the amount of initial capital invested

  • the return from the underlying investments

  • the amount of fees charged

  • how much you withdraw as income each year.

The tax benefits of account-based pension are:

  • you don’t pay tax on pension payments from age 60

  • if you’re aged between preservation age and 59, the taxable portion of your pension payments will be taxed at your marginal tax rate less a 15% offset

  • you don’t pay tax on investment earnings.

In some cases, the underlying investments for most pension accounts are chosen to minimise fluctuations but still provide a bit of growth.

Defensive assets

These include cash and fixed income. In general, they’re lower risk and provide lower returns over the long term.

Growth assets

These include equities and property. They’re usually open to market fluctuation but tend to provide higher returns over the long term.

Generally, defensive assets provide you with a relatively steady return and, therefore, income. However, some growth assets are usually needed to keep your funds growing during your retirement, so they last longer. With an account-based pension, you can mix defensive and growth assets to a ratio that you’re comfortable with.


Some annuities could provide you with regular and guaranteed income for either a fixed period or for life. They are more secure than account-based pensions as your income is guaranteed regardless of what the share market and interest rates do.

The downside is that you’re locked into the agreed income for the whole term or the rest of your life. If your circumstances change, you generally can’t withdraw a lump sum. A lifetime annuity also has no residual capital value, which means you can’t leave it to someone in your will.

The best of both systems

Continuing to build your investments, including your super funds, is still crucial in retirement. They need to keep growing to ensure your retirement income lasts as long as possible.

This means it becomes increasingly important to protect your super growth funds from market falls while still allowing them to grow if the market goes up.

Other things to consider

Age pension eligibility

When it comes to the Age Pension, there are several rules to determine your eligibility. You can learn more by visiting Services Australia, but some of the basic rules are:

  • You must have reached your Age Pension age, which is currently 66 (after 1 July 2019, age pension age will go up 6 months every 2 years until 1 July 2023).

  • You must be a resident of Australia.

  • You must pass income and asset tests.

If you don’t meet the income and assets tests to be eligible for the Age Pension, you may be able to access the Commonwealth Seniors Health Card (if you pass an income test). This card provides affordable medicine, bulk billed doctor visits and depending on what state you live in, there may be some other concessions that you’re entitled to. You can find out more from Services Australia.

Speaking to a financial planner

With so many options, it’s a good idea to seek help to ensure you’re investing in a way that suits you. Particularly as there are some more complex considerations, such as tax implications. 

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/work/plan-retirement/income

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