How does superannuation affect my retirement income?

Building the Nest Egg: Contributions and Investment

Super contributions come from two main sources: your employer and yourself (voluntary contributions). Your employer is legally obligated to contribute a minimum percentage of your salary (currently 9.5%, rising to 12% by 2025) into your nominated super fund. These contributions are tax-deductible for your employer, making super a tax-effective way to save for retirement.

Your super fund then invests these contributions on your behalf, aiming for growth over the long term. The specific investment strategy will vary depending on your chosen fund and your age. Generally, younger individuals have a higher risk tolerance, allowing for a higher allocation towards growth assets like shares. As you approach retirement, the focus may shift towards income-generating and more stable investments like bonds.

Accessing Your Super: Lump Sums and Income Streams

Upon reaching your preservation age (between 55 and 60 depending on your birth year), you gain access to your super savings. You have two main options for withdrawing your super:

  • Lump Sum: This allows you to withdraw your entire super balance in one or more payments. While tempting, a lump sum withdrawal requires careful planning. It’s no longer considered super, meaning any earnings on it are taxed differently. Additionally, spending a large sum upfront could deplete your retirement savings faster than anticipated.
  • Income Stream: This option allows you to convert your super into a regular income stream, similar to a pension. There are two main types:
    • Account-Based Income Stream (ABIS): Your super fund continues to invest your remaining balance, and you receive regular payments from the account along with any investment returns. The balance may fluctuate based on market performance.
    • Allocated Pension: This provides a fixed regular income for life, often purchased from a life insurance company using a portion of your super.

Tax Advantages of Super

Super offers significant tax benefits that contribute significantly to your retirement income. Contributions made by you (voluntary contributions) may be tax-deductible, reducing your taxable income and lowering your tax bill. Additionally, earnings on investments within your super fund are taxed at a concessional rate, typically lower than your marginal tax rate. This tax-effective environment allows your super to grow faster compared to saving outside super.

Super and the Age Pension

The Age Pension is a means-tested benefit provided by the Australian Government to eligible retirees. While accumulating super savings won’t directly affect your eligibility for the Age Pension, it can impact the amount you receive through income and asset tests. However, super held in accumulation (before retirement) is generally not counted in these tests. Once you start an income stream from your super, it will be assessed for the Age Pension.

Maximizing Your Retirement Income

Here are some key strategies to boost your retirement income through super:

  • Start Early & Contribute Regularly: The power of compound interest is significant. Starting super contributions early allows your money to grow exponentially over time.
  • Choose the Right Super Fund: Research different super funds and compare their fees, investment performance, and features.
  • Consolidate Your Super: Having multiple super accounts can incur unnecessary fees. Consider consolidating your accounts into one for better cost-efficiency.
  • Seek Financial Advice: A financial advisor can help you develop a personalized super strategy tailored to your retirement goals and risk tolerance.


Superannuation plays a crucial role in shaping your financial well-being during retirement. Understanding how super contributions, investment strategies, and withdrawal options work is essential. By making informed decisions and maximizing the tax advantages of super, you can build a solid foundation for a comfortable and financially secure retirement. Remember, planning for retirement is a continuous process. Regularly review your super balance, investment strategy, and retirement goals to ensure you’re on track for a golden future.


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