Turning super into retirement income usually means moving your balance into an account-based pension, which pays you a regular, tax-effective income while the rest stays invested. The main risks to manage are the minimum drawdown rules and “sequencing risk” — a market fall early in retirement — often softened by holding one to two years of income as a cash buffer.
For thirty or forty years, the instruction was simple: contribute, and don’t touch it. Then, almost overnight, the job reverses. Now the question is how to turn that balance into a pay cheque that lasts as long as you do.
From accumulation to drawdown
This is the moment your super stops being a number you watch grow and becomes the engine of your weekly life. It deserves more thought than it usually gets. The strategy that built your balance is rarely the one that should spend it down.
The account-based pension
For most retirees, the workhorse is an account-based pension: you move your super into a pension account, and it pays you a regular, tax-effective income while the balance stays invested. Earnings in this phase are generally taxed very favourably, which is one of the quiet advantages of retirement that many people don’t fully use.
A balance is potential. An income is freedom.
Mind the minimum drawdown
The government sets a minimum amount you must withdraw each year, and that minimum rises as you age. It’s sensible to understand it — both so you don’t inadvertently draw down faster than your plan intends, and so you make the most of the tax treatment along the way.
Sequencing risk: the first years matter most
Here is the risk few people see coming. A market fall early in retirement — while you’re drawing an income — does far more damage than the same fall later, because you’re selling units to fund your lifestyle just as prices dip. This is called sequencing risk, and managing it is one of the most valuable things an adviser does in the handover years.
Keep some powder dry
One practical antidote is to hold a buffer — often a year or two of income in cash or very stable assets — so you’re never forced to sell growth investments at the worst possible time. When markets wobble, you spend from the buffer and let the rest recover. It’s a simple idea that lets people stay invested, and stay calm.
The point of all of it
Done well, the move from saving to spending should feel like a promotion, not a cliff edge. The aim is an income that arrives reliably, is taxed lightly, and frees you to think about your week rather than your balance.
Key takeaways
- An account-based pension is the most common way to convert super into a regular, tax-effective income.
- Earnings in the retirement (pension) phase are generally taxed very favourably.
- The government sets a minimum amount you must draw each year, rising with age.
- Holding a cash buffer of one to two years’ income helps manage sequencing risk in down markets.
Frequently asked questions
What is an account-based pension?
It is a retirement income stream where you move your superannuation into a pension account that pays you a regular income while the balance stays invested. Earnings in this phase are generally taxed very favourably.
What is sequencing risk in retirement?
Sequencing risk is the danger of a market downturn early in retirement, while you are drawing an income. Selling investments at low prices to fund living costs can do lasting damage, which is why a cash buffer is often used.
How much do I have to withdraw from my super pension each year?
The government sets a minimum annual drawdown based on your age, increasing as you get older. An adviser can help you withdraw at least the minimum while keeping your strategy on track.