3 retirement income options to be aware of

6 June 2024

Understanding the income options available to you in retirement can be a great way to get your retirement planning started and boost your confidence.

Research into retirement confidence carried out by AustralianSuper and Monash University¹ considered 4 key factors that contribute to people’s retirement confidence in Australia:

• financial awareness and skills – knowing the basics, and who to turn to for help
• health and wellbeing – being physically and mentally well
• social factors – feeling connected
• retirement awareness and planning – knowing what you want in retirement, setting goals and having a plan to achieve them.

So, while the idea of not having a regular salary going into your bank account may be daunting, there are options to help you manage your finances, and maximise your retirement savings.

Financial planning in retirement

AustralianSuper Senior Product Manager, Retirement Louise Aracas says that goal setting and financial planning can be a good place to start for anyone approaching retirement, or who has recently retired:

‘Understanding your unique goals and needs is important when thinking about how much income you’ll need to support your retirement lifestyle over the long term,’ she says.

‘Set an income target, thinking about how much income you’ll need to live your ideal retirement, and over what timeframe, and then work out a strategy to help you achieve it. A financial adviser can help with this,’ she explains.

Aracas suggests that people focus on the long term: ‘Many members start by looking at the short-term risk level they think they’re comfortable with, rather than focusing on the long-term return they’ll need. This can make it harder to achieve goals, as you’re approaching it from a short-term risk minimisation view, rather than long-term growth perspective.’

3 retirement income options to be aware of

There are 3 main retirement income sources:

• the Government Age Pension
• your super
• and your personal savings and assets.

The mix is different for everyone.

1. The Government Age Pension

The Government Age Pension is a key pillar of Australia's retirement income system. For many retirees, it provides an income foundation that works alongside their super savings. Eligibility depends on several factors, including age and a means test of your assets and income.

2. Super and account based pensions

An account based pension is a retirement income option which allows you to draw a regular income stream from your super. This means you don’t have to take your super as a lump sum.

Your money stays invested, and can continue to benefit from any potential returns your fund may make. You have the flexibility to choose your investment option, and how often money is paid into your bank account.² You can also make extra withdrawals when needed, for example, if you want to have a holiday or renovate your home.

AustralianSuper’s account based pension is called Choice Income and it provides a simple and convenient way to manage your money. If you have an account balance of $50,000 or over, then you could be eligible.

Smart Default – simple account management

When you open an AustralianSuper Choice Income account, you can choose the Smart Default option. This means our in-house experts take care of your investment and payment options. This option makes managing your retirement income even easier. Smart Default sets you up with a regular income payment, calculated as a set percentage of your super balance.²

Aracas says the Smart Default option can be an easy way to open an account based pension because your investment and payment types have been developed by a team of in-house experts.

'It allows you to become more aware of your spending patterns. You can then adjust your income if needed, to suit your lifestyle,' she says.

Bucketing your super

A 'bucketing' approach is another key component of Smart Default. Bucketing is a concept that involves splitting your money into sections, or 'buckets'. For example, Smart Default invests 12% of your balance in the Cash option and the remainder in the higher-growth Balanced option. This enables you to cover your income needs and provide opportunities to help your money last through your retirement.

The Balanced option aims to outperform the rate of inflation by more than 4% a year over the medium to long-term.³ Your regular income payments are withdrawn from the cash bucket, meaning the Balanced option has an opportunity to recover if a market downturn strikes at the beginning of your retirement.

3. Personal savings and assets

Personal savings and assets, such as property and shares, can also make up part of your income in retirement. How you manage your assets is based on many factors – what they are, what they are worth and when you need to free up the cash invested in them. One question that sits above it all is: how long will I be in retirement?

There’s no firm answer to that question. But most retirees will need retirement income to last about 2 decades, and financial needs will change over time. Financial planning isn’t a set-and-forget exercise. It’s more like getting your car serviced – regular maintenance is part of keeping it reliable.

'Knowing that there are options available to suit your individual needs can help reduce worry and uncertainty in retirement. We have seminars to help you understand retirement income options.' says Aracas.

If you need help navigating your retirement income options and managing your assets consider speaking to a financial adviser.

AustralianSuper members

AustralianSuper members have access to professional financial advice on a fee-for-service basis⁴. Find a financial adviser online or call us on 1300 300 273 (8am to 8pm AEST/AEDT weekdays) to make an appointment with a financial adviser near you.