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Structuring your investments for retirement: maximising the benefits of super

Two-thirds of Australians fear they won’t have accumulated enough money to retire comfortably. This concern is particularly pronounced among baby boomers (52%) and Generation X (38%), while millennials express slightly more confidence, with only 31% feeling “not confident” about having...
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Two-thirds of Australians fear they won’t have accumulated enough money to retire comfortably. This concern is particularly pronounced among baby boomers (52%) and Generation X (38%), while millennials express slightly more confidence, with only 31% feeling “not confident” about having the necessary funds for retirement.1

Superannuation as a starting point

At the forefront of retirement planning lies the pivotal role played by Australian superannuation.  Upon reaching the Preservation Age, or alternatively, 65 under certain conditions, you are allowed to access your superannuation funds.  The most common strategy used is to initiate an account-based pension.2
Date of Birth Preservation Age (Years)
Before 1 July 1960 55
1 July 1960 - 30 June 1961 56
1 July 1961 - 30 June 1962 57
1 July 1962 - 30 June 1963 58
1 July 1963 - 30 June 1964 59
After 30 June 1964 60
Keep in mind that individual circumstances can vary, and professional financial advice is essential. Source:

Things you can do once you reach your Preservation Age

You do not need to retire if you do not want to.  If you continue working and earning an income beyond your Preservation Age, your superannuation can continue to accrue.  Under current legislation, you will automatically be able to access it once you reach the age of 65.

What are account based pensions? (also known as Allocated Pensions)

An account based pension transforms your superannuation into a regular income stream with some or all of your superannuation.

Rules governing account-based pensions are generally quite flexible. You can usually choose how often you get a payment (e.g. monthly, quarterly, annually). You can also nominate how much you will receive for each payment, as long as you meet the minimum drawdown requirements – more on this later.

If unexpected expenses arise, or you would like to make a major purchase such as a car or a holiday, you can withdraw more.

You can also opt to stop receiving the payments any time and get your remaining superannuation as a lump sum.

Tax benefits of account-based pensions

Starting an account-based pension not only provides a consistent income but also offers significant tax advantages.  Earnings and capital gains from the assets supporting your pension can potentially be tax-free, up to $1.9 million.  For instance, on a $500,000 balance, this could translate into annual tax savings of approximately $3,750, assuming an earnings rate of 5%.

There is no maximum pension payable for an account-based pension (e.g. the whole balance can be paid out), but a minimum amount of money must be withdrawn. 

For the 2023-24 financial year, the minimum drawdown is:

Age Annual payment (as a percentage of account balance)
55-64 4%
65-74 5%
75-79 6%
80-84 7%
85-89 9%
90-94 11%
95+ 14%

If the account-based pension minimum is not paid by June 30, the tax-free income status is lost.

Your account-based pension is also part of the income and assets tests, so it may affect your eligibility for the aged pension based on grandfathering rules.  Any money left in your Account Based Pension after you die will go to your beneficiary as a lump sum or continued regular payments.

Benefits and Risks of a Self Managed Superannuation Fund (SMSF)

Ultimately, SMSFs provide a broader spectrum of investment opportunities in contrast to conventional superannuation funds. With few exceptions, an SMSF has the flexibility to invest in almost any asset, provided it aligns with the Fund’s mandate and complies with regulations.

This degree of autonomy empowers SMSF members to promptly react to market fluctuations, match investments with individual principles, and broaden their portfolio in a manner that may not be feasible within the structure of a traditional fund.

For example: Alternative investments such as property loans can yield consistent income of ~12% p.a, and are secured against an underlying asset over a fixed term. 

Did you know?

In Australia, there are over 610,000 SMSFs holding $876 billion in assets, with more than 1.1 million SMSF members as of June 30, 2023.3


There can be disadvantages to managing your own SMSF.  In my opinion, the biggest risks are:

  • If you lose money through theft or fraud, you won’t have access to any special compensation schemes or to the Australian Financial Complaints Authority (AFCA).
  • You are personally liable for all the fund’s decisions — even if you get help from a professional (such as a financial adviser, accountant or legal professional) or if another member made the decision.
  • Rebalancing your investment in an account-based pension can be complex.

Setting up an SMSF involves responsibilities, compliance requirements, and ongoing management.  It’s essential to seek professional advice and carefully consider your individual circumstances before establishing one. 

Investment Strategy Obligations for an SMSF

An Investment Mandate in a Self-Managed Superannuation Fund (SMSF) refers to the strategic plan or guidelines that trustees formulate and implement for managing the fund’s investments. Let’s delve into the details: Your SMSF investment strategy should be in writing and be tailored and specific to your fund’s circumstances. It should not be a repeat of the legislation.  It should explain how your investments meet each member’s retirement objectives.  Merely specifying investment ranges (e.g., 0% to 100%) for each asset class is not sufficient.4

The overlooked aspect of retirement investment

Given the substantial tax benefits outlined above, effectively structuring your investments to sustain your retirement lifestyle requires further insight.  This is where the ‘Three Bucket’ approach to superannuation investment options becomes invaluable.

The ‘Three bucket’ approach

Three Pigs
Cash bucket
Time period:  Short
Purpose:  To cover every day living expenses for 12 months. This includes cash or cash-like investments to provide immediate retirement income over the next two to three years.
Investment types: Bank Accounts, Terms Deposits
Defensive assets bucket
Time period: Medium
Purpose: To meet medium term financial needs. This bucket offers a buffer during market volatility.
Investment Types: Fixed Interest, Bonds, Moderately Conservatives Managed Funds
Growth assets bucket
Time period: Long
Purpose:To find a higher retirement income for the longer term.
Investment Types: Shares, Property, Growth or High Growth Managed Funds.

The strategic allocation allows you to draw income from various sources, ideally reducing the need to liquidate growth assets during market downturns.  Directing earnings from the defensive and growth buckets into the cash bucket ensures you can live off the income generated by your portfolio, not the capital itself.

The Trustee of the SMSF will focus decisions based around the mandate in the issue document, however balancing your investments to align with the 3 bucket approach can also significantly increase your tax efficiencies. 

Due diligence when choosing investment products for your SMSF portfolio

Choosing an investment partner plays a crucial role in achieving your financial goals. Here’s some things to review when researching the Investment Manager offering a product you are considering:

  • Expertise and experience
  • Knowledge of market trends
  • Risk management
  • Accurate and timely reporting
  • Aligned financial interests to the members of the SMSF

Navigating Retirement Planning

There is no ‘one-size-fits-all’ answer.  Every individual’s financial journey is unique, influenced by personal goals, risk tolerance, and circumstances. A diversified approach that balances income and growth can generally be a good strategy for people starting an account-based pension cycle.   Superannuation withdrawal options and understanding how tax applies to your retirement, transition to retirement, or superannuation income streams is complicated.  For optimal results, consider speaking to a licensed adviser who can provide personal advice.  This can ensure your investments are optimally structured for a prosperous future.

Remember, a well-informed choice can lead to better outcomes.

Written by
Alastair Kennelly

ASIC Authorised Representative No (417567)

The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Investments can go up and down. Past performance is not necessarily indicative of future performance.
Account-based pension calculator
Alastair Kennelly
Guest Author
Alastair has worked in the Financial Services arena for over 17 years. His wealth of experience spans from large investment firms through to bespoke wealth management and personal advisory services.
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