A new report by the Super Members Council (SMC) has highlighted an important issue for Australians approaching or already in retirement.
The research found that around 700,000 Australians over 65 who are not working full-time still have their super sitting in taxed accumulation accounts. As a result, they are paying an average of $650 more in tax each year than if they had transitioned into tax-free retirement accounts.
Even more significantly, the modelling shows that a typical retiree could miss out on as much as $136,000 over the course of retirement or around $6,500 per year due to delayed or sub-optimal decisions when entering retirement.
The retirement system is not simple, it’s detailed, layered, and not always intuitive. But your retirement should not be a constant source of worry. This stage of life is meant for peace of mind and enjoying the things you love, knowing your savings are structured to support your plans.
If you are already in retirement or approaching it, take a moment to review your situation carefully. Reviewing your retirement plan can help protect your hard-earned savings and ensure you’re not leaving money on the table.
In this blog, we’ll break down what you need to know and the practical steps you can take to avoid this costly $136,000 mistake, maximise your income, and make the most of your retirement.
Why Retirees Are Paying More Tax in Retirement?
First, let’s understand how and why many retirees end up missing out on $650 per year in potential retirement income.
Many Australians assume that once they stop working or reach a certain age, their super automatically becomes tax-free. Unfortunately, this is one of the most costly assumptions you can make. According to SMC findings, around 700,000 Australians over 65 who are not working full-time are keeping their super in taxed accumulation accounts, often unsure when or how to move it into a tax-free retirement-phase account.
So, by not actively making this transition, earnings in these accounts continue to be taxed at up to 15%, meaning the average retiree misses out on around $650 per year in potential income.
What’s more it may be possible to roll your super into a pension prior to 65 if eligible.
As financial advisors working with many clients, we’ve seen how people often assume things or aren’t sure when and how to take action in retirement. It’s easy to delay decisions when the process feels confusing. But your retirement shouldn’t be left to guesswork. Taking the time to understand your taxes today and plan for your hard-earned savings can help you protect your income and enjoy the retirement you’ve worked for.
Other Reasons Retirees are Missing Out
Contributing factors to the average $6,500 per year deficit identified in the SMC study include:
- How you take money out (drawdown pattern)
Some people take out too little because they worry about running out, so they live more frugally than they need to.
Others take out too much too early or let the rules completely dictate their withdrawals, which can increase the risk of money running out later.
A better approach is a planned, flexible withdrawal strategy that matches your lifestyle needs, eligibility for Age Pension and how long your money may need to last.
- How your money is invested in retirement
Moving everything to cash or very conservative options can feel safe, but it often means your savings grow too slowly and get eaten away by inflation over a long retirement.
Staying in a poor‑performing or high‑fee fund can also quietly erode your income over time.
The goal is to keep an appropriate mix of growth and defensive investments, in a well‑performing, good‑value fund, so your money has a better chance of lasting and supporting the lifestyle you want.
Understanding Taxes on Retirement Income
Retirement income in Australia can come from several sources, superannuation, Age Pension, and other investments and each is treated differently for tax purposes. Understanding which accounts are taxed and which are tax-free is key to making the most of your retirement savings.
Here’s a more detailed breakdown of how retirement income is taxed:
Accumulation-Phase Super
Even after you retire, your super does not automatically become tax-free. If your balance remains in the accumulation phase, investment earnings (such as interest and dividends) are taxed at up to 15%, and capital gains may receive a discounted rate if assets are held long term.
Retirement Phase Account (Account-based pension)
Once you reach preservation age and meet a condition of release (such as retirement), you can convert some or all of your super into an account-based pension.
In the retirement phase:
- Investment earnings within the pension account are generally tax-free
- Pension payments are tax-free if you are aged 60 or over
- Minimum annual drawdown requirements apply based on your age
However, there are strategic considerations, such as the Transfer Balance Cap (currently limiting how much can be moved into the tax-free retirement phase), which means not all super balances can necessarily enjoy a fully tax-free environment. Any excess typically remains in accumulation phase and continues to be taxed.
Age Pension
The Age Pension, paid by the government, is generally tax-free income. However, eligibility and payment levels are subject to income and assets tests.
Importantly, while the Age Pension itself may not be taxed, your total income from other sources (such as super pensions or investments) can influence both your tax position and the amount of Age Pension you receive. This interaction makes retirement income planning especially important for those with mixed income sources.
Other Investments Outside Super
Income generated outside super including rental income, dividends, term deposits, managed funds, or capital gains is typically taxed at your marginal tax rate.
Key Strategies to Avoid Tax Mistakes in Your Retirement
To help you avoid common but costly tax mistakes, here are some key strategies to review. Take a moment to check your retirement plan and make sure you’re heading in the right direction.
1. Transition Into the Retirement Phase at the Right Time
One of the most important steps is moving your super from the accumulation phase into a retirement-phase account. Delaying this transition can result in paying unnecessary tax each year. Take the time to review your super and ensure you meet the eligibility requirements, so you’re set up to receive your full, tax-free retirement income.
2. Understand and Manage Your Transfer Balance Cap (TBC)
The TBC sets the maximum amount you can move into retirement-phase super accounts. The current cap is set at $2 million. Knowing your cap helps ensure you don’t exceed it and avoid paying excess transfer balance tax. With early planning, you can also structure your super across multiple accounts to make the most of tax-free retirement-phase earnings and maximise your retirement income.
If you’d like to learn more about the current transfer balance cap and related strategies, check out our recent blog: Transfer Balance Cap Increase to $2 Million: What It Means for Your Super and Retirement Strategy
3. Consider a Transition-to-Retirement (TTR) Strategy
A TTR allows people who are still working part-time or phased-retired to access some of their super while continuing to contribute and grow their balance. This strategy can provide additional flexibility, reduce tax on earnings, and smooth the transition into full retirement.
That said, a TTR isn’t automatically right for everyone. There are important factors to consider before starting a TTR, and it’s important to review whether it’s the right option for your situation. If you’d like to learn more, you can check out our dedicated page on TTR and seek expert advice before making any decisions.
4. Plan Your Drawdowns Strategically
Once your super is in the retirement phase, it’s important to understand minimum drawdown requirements and set a withdrawal strategy that fits your situation. These minimum rates are set by the government and are calculated as a percentage of your starting balance on 1 July each financial year, based on your age.
A common mistake many retirees make is not reviewing their withdrawal rate and simply sticking to the default government minimum. Withdrawing too little can leave money sitting unnecessarily in your accounts, while withdrawing too much can increase the risk of running out of funds later in retirement. Talk to a retirement advisor and adjust your withdrawals to what works best for you, this helps your income last and your money work smarter.
5. Plan Early with Trusted Retirement Advice
The earlier you plan, the more confident and secure your retirement can be. Getting trusted advice from a financial expert isn’t just about numbers, it’s about making sure your hard-earned savings support the life you’ve worked for.
Many people don’t realise they’ve made a mistake until it’s too late, or simply aren’t aware of the strategies, rules, and requirements that could protect their savings. Working with a trusted retirement advisor ensures your plan is tailored to your unique situation, prepared for any upcoming changes, and gives you the peace of mind to simply enjoy your retirement, knowing your money is working for you.
How Yield Retirement Advisors Can Help You?
At Yield, we specialise in helping Australians navigate the retirement journey with confidence. Our team of retirement experts has guided many clients to retire on their own terms, ensuring their hard-earned savings are protected and work efficiently to support the lifestyle they want.
We always take a personal approach to retirement planning, tailoring strategies to your unique situation, goals, and priorities. From structuring your super and managing tax to planning drawdowns and preparing for future expenses, we focus on quality, practical advice that makes your retirement simpler and more secure. If you’d like to speak with one of our retirement advisors, contact us today to book your initial free consultation. From there, you’ll be connected with a retirement advisor to discuss your situation and explore how we can help you make the most of your retirement.
