If you’re approaching retirement, you’ve probably asked yourself: “How superannuation works when you retire?”It’s one of the most important questions Australians in their 50s and 60s face because super isn’t just about building savings, it’s about knowing how to use that money once you stop working.
In this guide, we’ll explain in plain English how superannuation works when you retire, what options you have for accessing it, and how to make the most of your retirement income.
Why Superannuation Matters in Retirement
Superannuation is Australia’s retirement savings system. During your working years, your employer contributes a percentage of your salary (currently 11.5% in 2025) into your super fund. Over time, those contributions combined with investment returns build your retirement nest egg.
When you retire, that balance becomes one of your main income sources, alongside the Age Pension and any personal savings. Understanding how superannuation works when you retire is the key to turning your nest egg into a reliable income stream.
When Can You Access Superannuation?
You can access your super when you reach your preservation age and meet a condition of release.
- For most Australians today, preservation age is 60.
- You also need to retire, transition to part-time work, or meet another approved condition.
Example: If you turn 60 in 2025 and decide to retire, you can access your super tax-free. If your partner is younger, they’ll need to wait until they reach their own preservation age.
How Superannuation Works When You Retire: Your Options
Once you’re eligible, you can use your super in different ways. The right option depends on your lifestyle, financial goals, and retirement timeline.
1. Lump Sum Withdrawal
- You can withdraw all or part of your super as a cash payment.
- This gives flexibility but requires discipline once it’s spent, it’s gone.
- Popular for paying off debts, renovating the home, or funding big purchases.
2. Account-Based Pension (Most Common)
- You convert your super into a pension account that pays you regular income.
- Payments are flexible you can choose how much you draw each year (above a minimum).
- Your money stays invested, so your balance can continue to grow.
3. Annuities
- Offered by financial institutions, annuities provide guaranteed income for a set period or for life.
- Useful if you want predictable payments, but less flexible than account-based pensions.
Most Australians use a mix of options for example, taking part of their super as a lump sum to clear debts, and the rest as an account-based pension for steady income.
How Tax Works on Superannuation in Retirement
One of the best parts of retiring after age 60 is that super withdrawals are generally tax-free.
- Lump sums taken after 60 are tax-free.
- Account-based pension payments are tax-free.
- Investment earnings in retirement phase are also tax-free (up to the transfer balance cap, which is $1.9 million in 2025).
This makes super one of the most tax-effective ways to fund retirement.
How Super and the Age Pension Work Together
Many Australians won’t have enough super alone to cover all retirement costs. That’s where the Age Pension comes in.
- From age 67, you may qualify for a full or part pension depending on your income and assets.
- Superannuation balances are counted in the assets test once you reach pension age.
- Planning withdrawals strategically can help maximise Age Pension eligibility.
Example: A couple with $700,000 in super may receive a part Age Pension alongside their account-based pension, boosting their overall retirement income.
Key Takeaway: How Superannuation Works When You Retire
Superannuation is designed to replace your wage with retirement income. Once you retire and reach preservation age, you can:
- Take lump sums,
- Set up a regular income stream through an account-based pension,
- Or combine both approaches.
By understanding how superannuation works when you retire, you can make smarter decisions that balance flexibility, security, and long-term comfort.
FAQs
1. How superannuation works when you retire at 60?
At 60, you can usually access super tax-free if you’ve retired. You can take it as a lump sum, pension, or both.
2. Can I keep working after accessing super?
Yes. Many Australians transition to part-time work while drawing income from their super.
3. How much super do I need for retirement?
ASFA suggests around $500,000 for singles and $690,000 for couples for a comfortable retirement in 2025.
4. What happens if I run out of super?
You may become eligible for a higher Age Pension, but it usually means adjusting to a more modest lifestyle.
5. Is it better to take a lump sum or income stream?
It depends on your needs. Lump sums offer flexibility but risk running out of money. Income streams provide regular payments and tax advantages
So, how superannuation works when you retire is simple: it turns from a savings vehicle into your main source of income. Whether you take lump sums, start an income stream, or combine both, super is designed to give you security, freedom, and peace of mind in retirement.
At Wealthlab, we specialise in helping Australians understand their super options and design retirement strategies that fit their lifestyle.
👉 Book a consultation today to make sure your super is working hard for your retirement.
Learn More About Retirement & Superannuation
https://treasury.gov.au/policy-topics/superannuation
https://www.superannuation.asn.au/consumers/retirement-standard/
https://www.servicesaustralia.gov.au/how-much-age-pension-you-can-get?