What happens to your super when you retire?

Superannuation is one of the important pillars of savings in retirement for most Australians. After years of working and contributing to your super fund, retirement is when you are finally able to access it. Whether retirement is just around the corner or still a few years away, it’s worth understanding your options.

In this article, we’ll walk you through your options on what do with your super when you retire, how is it taxed and what happens if there’s any left when you pass away.

When can you access your super?

You can usually access your super when you reach your preservation age (currently age 60) and retire. Alternatively, you can start accessing it once you turn 65, even if you’re still working.

There are other special circumstances where you might be able to access it earlier, like severe financial hardship or permanent disability but generally speaking, retirement is the key trigger.

Your options once you have access to your super

Once you retire and meet a condition of release, your super becomes accessible for you to withdraw but that doesn’t necessarily mean you have to withdraw and use all of it.

You’ve got a few main options and you may prefer a combination of these:

1. Leave it in your super fund (Accumulation phase) 

Yes, you can actually choose to leave your super where it is, in its accumulation phase even after you retire.

If you don’t need to access the money straight away, you can leave your super invested in the fund’s accumulation account. Your money can keep growing (taxed at 15% on earnings) and you can access it when you’re ready.

So, while this may suit short-term plans, it may usually not be the most tax effective option when compared to other options like starting a superannuation pension in retirement, which is often tax free and funded with money from your superannuation savings.

2. Take a lump sum 

Where access to funds is required, you may prefer withdrawing a lump sum from super. This can help you in various ways like paying off a mortgage, clearing credit cards or personal loan debt, covering medical costs, funding travel expenses or investing elsewhere (e.g. property, shares outside of super).

However, this decision should be carefully considered as withdrawing a lump sum or lump sums can reduce how long your super lasts. It’s also worth considering how that money will be managed outside super, as it may be subject to different tax treatment or may impact any Centrelink entitlements like the Age Pension.

3. Start a superannuation pension (account-based income stream)

An account-based pension lets you convert your accumulated super into a regular income stream. However, once an income stream is started with a set balance, you cannot add more monies to the ongoing account-based pension unless the pension is commuted and restarted again. If you need access to your superannuation savings, starting an income stream is a popular option which can be tax effective.

Where access to the super savings is required, an income stream can be a good option because:

• You can receive regular and flexible payments (monthly, quarterly, etc).
• You can choose how much to set as regular income for your pension payment (subject to government set minimum limits).
• Earnings are tax free once you’re in pension phase.
• Payments can be adjusted as your needs change.
• You keep control over your investment strategy.

You can still withdraw lump sums if needed but many people like the idea of a steady income, much like a salary. However, consider that the ongoing income payments can reduce your account balance over time.

4. Can a lifetime annuity help? 

One of the biggest concerns for retirees is running out of money.

If you want income for life, no matter how long you live, lifetime income streams such as a lifetime annuity can help you achieve that.

Unlike an account-based pension (which relies on how long your money lasts), a lifetime annuity is more like an insurance product. You invest a lump sum from your super and in return, receive a regular income for the rest of your life.

Some retirees consider using a combination of a pension and an annuity – the pension provides flexibility and the annuity can provide peace of mind. However, lifetime annuities are designed to be held for life. Although there may be flexibility to access a lump sum if needed, there may be break cost considerations.

Can I combine these options?

Absolutely and many retirees choose to do so.

You might prefer to consider:

• Leaving some of your super invested in accumulation phase.
• Taking a lump sum to pay off debts.
• Starting a super pension to draw regular income.
• Using part of your super to start a lifetime annuity.

The right mix will depend on your lifestyle, goals, health, family situation and other sources of income, including the Age Pension. There are many more options we have not discussed.

The Age Pension and Super: How they can work together

The Age Pension is a government payment designed to help eligible Australians in retirement. As of 2025, you can apply for the Age Pension from age 67.

There are also concessions and benefits that come with it, such as reduced utility bills and medical costs, so it’s well worth checking your eligibility.

Eligibility is also based on your means – your income and assets. Centrelink includes your super in the assets and income tests. However, the assessment can differ if your super is converted into an income stream like a lifetime annuity.

Age Pension, combined with other sources of super based income like an account-based pension and/or a lifetime annuity, can help make your money last longer. It acts as a safety net if your super runs down over time. This can be a powerful way to stretch your retirement savings further.

How is my super taxed when I retire?

The earnings on your super are usually taxed at a maximum rate of 15% whilst the super remains in accumulation phase. Where an account-based pension is started, the earnings in the pension phase are tax free.

If you’re age 60 or over, any withdrawals from your super (lump sum or income) are usually tax free if you’ve permanently retired.

However, if you’re under 60 or receiving certain types of benefits (like defined benefit pensions), tax rules may be a little different. It’s worth speaking to a financial adviser to understand your situation.

How do I make my super last?

Australians are living longer than ever, and therefore it is important to strategise and ensure that your retirement savings can last for a long time.

Here are a few strategies to consider:

• Budget and plan – Work out how much income you need as opposed to how much you want. Consider your spending habits and lifestyle goals to help ensure you don’t withdraw more than you need. Work out how long your super will last.
• Stay invested – Your money doesn’t have to stop working for you when you retire. Draw appropriate amounts based on your retirement objectives and consider keeping the balance invested in an option that suits your risk tolerance and goals.
• Mix your income sources – Layering your income can help your super last longer. One way you could consider meeting your essential expenses throughout retirement, the Age Pension can work together with a secure, lifetime income stream, such as a lifetime annuity, to provide regular income payments for life. Once your essential expenses have been met through a combination of the Age Pension and a lifetime income stream, you could meet your additional desired expenditure goals with income from an account-based pension.
• Review your investments – Ensure they match your risk tolerance and income needs in different phases of your retirement.

What happens to my super when I die?

If you don’t use all your super before you pass away, the remaining balance is generally paid out to your beneficiaries, either as a lump sum or income stream (depending on your instructions and their eligibility) or your estate.

This is known as a death benefit and it can be left to your spouse or partner, your children, certain dependant or interdependents or your estate. It can either be paid as a lump sum or can be paid as an income stream. The tax treatment depends on who receives the benefit. For example, a lump sum payment to a spouse is tax free.

To make sure your wishes are followed, it’s important to nominate your beneficiaries with your super fund. You can make a binding death benefit nomination to ensure your super goes exactly where you want it to. Otherwise, your super fund will decide (within legal guidelines).

Steps toward a stronger retirement

Super can be one of the most flexible and tax effective ways to fund your retirement but simply reaching retirement age doesn’t mean your financial decisions stop. In fact, how you choose to access and manage your super can shape your lifestyle for decades to come.

Whether you choose a lump sum, a regular income or a combination, planning ahead is essential. Think about how long your money needs to last, how to make the most of your tax benefits and how to combine super with other income sources like the Age Pension. A financial adviser can help you tailor your retirement needs with the right options.

Super is more than just savings. The right strategy can help your super last longer, support your quality of life, and give you peace of mind.

If you’d like personal guidance on this topic, contact our team to discuss your situation.

Source: Challenger