What Happens to Super When You Retire in Australia?

You've spent years building your superannuation.

Then retirement approaches and a completely different question appears: what actually happens to my super when I stop working?

A common misconception is that your super is automatically paid to you when you retire.

It isn't.

Retiring from work and accessing your super are related, but they're not the same thing.

Once you're eligible to access your super, you generally have choices about what happens next.

Understanding those choices before your final day at work can make the transition into retirement much easier.

Does Your Super Automatically Get Paid Out When You Retire?

No.

Your super doesn't automatically arrive in your bank account simply because you stop working.

If you're eligible to access it, you can generally decide what you want to do with it.

Depending on your circumstances and fund, your options may include:

• Leaving money in your existing super account
• Starting a retirement income stream
• Taking some super as a lump sum
• Withdrawing all of your super
• Using a combination of these options

You don't necessarily have to make one decision for your entire balance.

When Can You Access Your Super?

Australia has rules governing when super can be accessed.

For most people approaching retirement today, preservation age is 60.

But reaching 60 doesn't necessarily mean you can automatically withdraw everything while continuing to work exactly as before.

Generally, access depends on meeting a condition of release.

For example, you may be able to access your super when you reach age 60 and retire or cease an employment arrangement.

At age 65, you can generally access your super even if you're still working.

There are also transition-to-retirement arrangements that may allow eligible people to access some super while continuing to work.

Because individual circumstances differ, check the current rules and speak with your super fund before making plans based on accessing your balance.

For current government guidance, see Moneysmart — accessing your super

Option 1: Leave Your Money in Super

Retirement doesn't necessarily mean you have to immediately withdraw your super.

You may be able to leave some or all of your money in your accumulation account.

The money generally remains invested according to the investment option you've selected.

Before doing this, check:

• Your investment option
• Administration and investment fees
• Insurance arrangements
• Your fund's rules
• Your beneficiary nomination
• Whether the account remains appropriate for your retirement needs

Remember that an accumulation account and a retirement income account can operate differently.

Option 2: Start an Account-Based Pension

One common way Australians use super in retirement is through an account-based pension, sometimes called a retirement income account.

Instead of withdrawing your entire balance, you transfer an amount from your super into a pension account.

The account then makes regular payments to you.

Depending on the product, you may be able to choose whether those payments arrive:

• Monthly
• Quarterly
• Half-yearly
• Yearly

There are minimum annual withdrawal requirements based on your age.

For someone under 65, the standard minimum annual drawdown rate is currently 4% of the account balance. For ages 65–74, it is 5%, with higher minimum percentages applying at older ages.

An account-based pension can provide flexibility, but it doesn't guarantee your money will last for life.

How long the account lasts depends on factors including:

• Your starting balance
• How much you withdraw
• Investment performance
• Fees
• How long you're retired

That's why deciding how much income to draw from super can be just as important as deciding when to retire.

Option 3: Take a Lump Sum

You may also be able to take some or all of your super as a lump sum once you've satisfied the access rules.

A lump sum might be used for things such as:

• Paying off a mortgage
• Renovating your home
• Buying a vehicle
• Travel
• Medical expenses
• Keeping money outside super
• Other major retirement expenses

But withdrawing money from super can have consequences.

Once money leaves the super system, the rules applying to that money can change.

It may also affect how long your retirement savings last, your tax position or your eligibility for government benefits.

A large withdrawal therefore deserves careful consideration.

Option 4: Use a Combination

Retirement doesn't have to mean choosing between an income stream or a lump sum.

You may potentially use both.

For example, someone might withdraw part of their super to clear a mortgage and transfer the remaining balance into an account-based pension to provide regular retirement income.

Another person might leave part of their money in accumulation and use another portion for retirement income.

The appropriate structure depends on the person's circumstances.

The important thing is to understand the options before making an irreversible decision.

What Happens to Employer Super Contributions?

When you finish employment, compulsory super contributions from that employer generally stop.

If you continue working elsewhere, your new or continuing employer may still make contributions.

If you're transitioning gradually into retirement rather than stopping work completely, super contributions and retirement income can therefore overlap.

This is one reason retirement isn't always a single event.

For some Australians, it's a process.

Can You Access Super and Keep Working?

Potentially, yes.

Australia has Transition to Retirement, or TTR, arrangements.

A TTR income stream may allow someone aged 60 or older to access some of their super while continuing to work.

For example, someone may decide to reduce their working hours and use a TTR income stream to supplement their employment income.

Specific withdrawal restrictions apply to TTR arrangements, so this is an area where understanding the rules is important before acting.

What About Tax?

For many Australians aged 60 or over, payments from a taxed super fund are generally tax free.

However, not every super benefit is treated identically.

Tax can depend on factors including:

• Your age
• The type of super fund
• The components of your super
• The type of payment
• Why the money is being accessed

Don't assume every person's super withdrawal will receive exactly the same tax treatment.

Check your own situation before making a significant withdrawal.

Does Super Affect the Age Pension?

It can.

Superannuation and the Age Pension are separate systems, but they can interact.

How your super is treated for Age Pension purposes can depend on factors including your age and how the money is held.

An account-based pension can also be assessed under the Age Pension income and assets tests.

This means decisions about moving or withdrawing large amounts of super should not be made solely by looking at the super balance itself.

Consider the overall retirement picture.

For current eligibility information, see Services Australia — Age Pension

Don't Forget Your Investments

Retiring doesn't mean your super suddenly stops being invested.

If money remains inside super or is moved into an account-based pension, it will generally remain invested according to the investment options you select.

That means your balance can continue to rise and fall.

Before retirement, check how your super is invested and ask yourself whether that investment approach remains appropriate for the way you expect to use the money.

Retirement can last decades.

Moving everything to an extremely conservative investment simply because you've stopped working may have long-term consequences, just as taking excessive investment risk can.

Check Your Insurance Before Changing Your Super

Another area that's easy to overlook is insurance.

You may currently have life, total and permanent disability or income protection insurance through your super fund.

That cover may change or end because of your age, retirement, employment situation or what you do with your super account.

Before closing an accumulation account or transferring the entire balance, check what happens to any insurance attached to it.

What Happens to Your Super When You Die?

Your remaining super doesn't automatically form part of your estate in the same way as money held in an ordinary bank account.

Super funds have specific rules about paying death benefits.

That's why it's important to review your beneficiary arrangements as part of retirement planning.

If you have both an accumulation account and a retirement income account, check the beneficiary arrangements applying to each.

Estate planning and superannuation planning should work together.

Before You Retire, Ask Your Super Fund These Questions

A useful step is to contact your super fund before retirement and ask:

• When can I access my super?
• What retirement income products do you offer?
• What fees apply?
• What investment options are available?
• What are the minimum pension withdrawals?
• What happens to my insurance?
• Are my beneficiary nominations current?
• What forms will I need to complete?
• How long does setting up a retirement account usually take?

You don't need to wait until your last day at work.

Understanding your options beforehand can make retirement much less stressful.

Your Super Doesn't Have to Be an All-or-Nothing Decision

One of the most useful things to understand is that retirement doesn't necessarily mean emptying your super account.

Your super can potentially continue working for you after your employment income stops.

• You may leave some invested.
• You may turn some into regular income.
• You may withdraw some for a specific purpose.
• Or you may use a combination.

The important step is understanding what each option means before deciding what to do.

Ready to Understand Your Super Before Retirement?

Knowing your super balance is only the beginning.

You also need to understand when you can access it, how it could provide retirement income and what decisions you'll face when you stop working.

The RGX-102 Superannuation Workbook is designed to help you organise and better understand the superannuation side of your retirement planning.

Start by checking your current super balance, investment option, fees, insurance and beneficiary details, then explore the RGX-102 Superannuation Workbook