Retirement doesn’t mean the end of taxation. Most Australians continue to pay tax on various income sources throughout retirement, but powerful strategies exist to significantly reduce what you owe. Understanding how superannuation, investment income, and capital gains are taxed can save you thousands each year.
Overview: Do You Pay Tax in Retirement – And How Can You Reduce It?
For most people, preservation age is now 60, while age pension eligibility begins at 67. The retirement phase of super refers specifically to complying income streams like account based pension accounts commenced after meeting a condition of release.
From age 60, most super pension income is generally tax free for those in taxed funds. However, other retirement income—rental payments, dividends, bank interest, and work wages—may still attract tax at your marginal tax rate.
Key strategies to reduce tax in retirement include:
Maximising concessional contributions before you retire
Managing the transfer balance cap strategically
Structuring retirement income streams effectively
Timing lump sum withdrawals and capital gains
Coordinating super with age pension rules
Note: Tax rules and thresholds change regularly. This article uses 2024–25 rules as a guide. Money Path focuses on strategic retirement planning to help clients design tax-efficient retirement income.
The 7 Main Taxes You May Face in Retirement
Retirees in Australia are subject to various types of taxes, including tax on superannuation earnings, superannuation pension income, Centrelink Age Pension income, personal investment income, personal capital gains, and super contributions. Understanding where your biggest “tax leaks” occur helps you prioritise strategies.
Tax on Superannuation Earnings (Accumulation vs Retirement Phase)
While in your super accumulation account, fund earnings are generally taxed at up to 15%, with capital gains receiving a one-third discount (effective 10% rate). Once you meet a condition of release, moving super to a retirement phase pension account makes earnings and capital gains on those assets 0% tax.
Example: An $800,000 balance earning 7% annually pays approximately $8,400 in tax yearly in accumulation versus $0 in retirement phase.
Tax on Superannuation Pension Income
For most people aged 60+, pension payments and lump-sum withdrawals are entirely tax free from a taxed super fund. Retirement income from a taxed super fund is generally tax free for those aged 60 or older.
If you are aged 55 to 59, your superannuation pension income will have two components: a tax free component and a taxable component, which is taxed at your marginal tax rate.
Investment returns on transition to retirement (TTR) pensions are taxed at up to 15%, similar to a super accumulation fund, until the individual fully retires or turns 65. Tax on superannuation earnings varies depending on the type of account held, and not all pension earnings from super are tax free from age 60, contrary to common belief.
Tax on Centrelink Age Pension Income
Centrelink Age Pension payments are means-tested and, if eligible, are added to other taxable income and assessed at the retiree’s marginal tax rate, which can range from 0% to 47%.
The Seniors and Pensioners Tax Offset (SAPTO) can increase your effective tax free threshold, potentially allowing a single person to earn over $33,000 tax free. Singles can earn up to $32,279 (or $52,759 for the full offset) without paying tax under SAPTO.
Tax on Work and Other Investment Income in Retirement
If you keep working, wages are taxed at your marginal tax rate like before retirement. Investment income from bank interest, rental income, and dividends counts as taxable income on your tax return.
Investing in Australian shares that pay fully franked dividends can provide franking credits to offset other tax payable or be refunded if your tax liability is zero. This can generate a tax refund for low-income retirees.
Tax on Personal Capital Gains
Capital gains tax (CGT) is applicable when a personally-owned investment is sold for a profit, with a 50% discount available if the investment was held for more than 12 months. The gain is added to your other income earned that financial year.
Careful timing across multiple financial years can smooth income and reduce tax payable significantly.
Tax on Super Contributions
In Australia, retirement tax minimisation largely focuses on shifting assets into the superannuation environment, where tax rates are significantly lower than personal income tax rates. You trade highly-taxed salary for super contributions taxed at only 15%.
The Low Income Super Tax Offset (LISTO) provides a rebate to offset the 15% tax on contributions for those earning less than $37,000.
Maximising Super Contributions Before You Retire
The years from about age 55 to 67 are often the most powerful window to reduce lifetime tax by boosting super using super contributions.
Concessional Contributions: Using Pre-Tax Dollars to Reduce Tax
The current concessional contributions cap is $30,000 per financial year for all individuals, and unused amounts can be carried forward for up to five years if the total super balance was under $500,000 on the previous 30 June.
Utilising the carry-forward rule allows individuals with a total super balance under $500,000 to carry forward unused concessional contribution caps for up to five years, providing an opportunity to reduce taxable income in high-earning years.
Making personal deductible contributions to super can provide a tax deduction equal to the contribution amount, helping to reduce taxable income during retirement.
If your income plus concessional contributions exceed $250,000, an additional 15% tax known as Division 293 may apply to some or all of your concessional contributions.
Non-Concessional Contributions: Boosting Tax-Free Super
Non-concessional contributions, which include personal contributions and downsizer contributions, do not incur any contributions tax, allowing the full amount to be added to your super balance.
If you are 55 or older, you may contribute up to $300,000 from the sale of your home into super. Downsizer contributions do not count towards your standard contribution caps.
As of 1 July 2026, the non-concessional cap will be $130,000 per year, and a 15% additional tax will apply to earnings on the portion of your super balance exceeding $3 million.
Spouse Contributions, Splitting and Equalising Balances
Spouse contributions can generate a tax offset of up to $540 when the receiving spouse earns below $37,000. Contribution splitting helps equalise super balances between partners, maximising each partner’s transfer balance cap.
Example: A couple with $1.7m and $400k balances can split contributions to create more room under each partner’s $2m cap.
Transition-to-Retirement and Timing Your Retirement Date
How and when you move from full-time work to retirement has major tax implications.
Transition-to-Retirement (TTR) Strategies Done Properly
Once you reach preservation age (usually 60) and retire, you can convert your super into an account based pension. Before fully retired, transition-to-retirement (TTR) strategies can help reduce tax and smooth income as individuals approach retirement, allowing for tax-effective withdrawals while still working.
The classic strategy: salary sacrifice more into super, replace take-home pay with tax-effective TTR income stream payments.
Timing Retirement, Leave Payouts and Lump Sums
Retiring just after 30 June can shift income received into a different financial year, potentially lowering overall tax. Large leave payouts in a single year can push you into higher tax brackets unnecessarily.
Using Retirement-Phase Pensions and Asset Location to Reduce Ongoing Tax
Once fully retired, the main tax levers become getting the right amount into tax free retirement-phase pensions and deciding which investments sit inside super versus in your own name.
Converting Super to an Account-Based Pension After Age 60
For most people, an income stream from superannuation will be tax free from age 60, but this can vary based on the type of super fund and the individual’s circumstances. Regular payments from an account based pension provide tax free retirement income.
Managing the Transfer Balance Cap Strategically
The general Transfer Balance Cap (TBC) is currently set at $2 million, which is the limit on how much superannuation can be transferred into the tax free retirement phase.
If an individual exceeds the Transfer Balance Cap, they may incur additional tax on the excess amount that is moved into the tax free retirement phase. The Transfer Balance Cap applies to the total of all tax free retirement phase accounts across all super funds, meaning that individuals need to manage their superannuation balances carefully to avoid exceeding the cap.
Thinking Differently About Where Assets Are Held
High-yield, tax-inefficient assets are often better held inside super funds where earnings can be taxed at 15% or 0%. Growth-focused assets outside super provide flexibility for large expenses and estate planning.
Structuring Withdrawals, Capital Gains and Lump Sums for the Long Term
How you draw money down each year changes both current tax and how long retirement savings last.
Choosing the Order of Withdrawals
Many retirees draw from non-super money first to let super grow tax free. However, this depends on your personal circumstances, financial situation, and age pension implications.
Managing Personal Capital Gains Across Financial Years
Splitting a large capital gain across two financial years can keep you in lower tax brackets. Offset gains with capital losses where possible.
Small Business Owners: Using the CGT Retirement Exemption
The CGT retirement exemption allows up to $500,000 of capital gains per person to be exempt when selling an eligible small business. Estate planning can convert the taxable component of your super into a tax free component, and beneficiaries can save up to 17% in tax on super death benefits due to this conversion.
Coordinating Tax Planning with the Age Pension and Other Benefits
Reducing tax in retirement isn’t just about the ATO—age pension means tests must also be considered.
Balancing Tax Outcomes with Age Pension Means Tests
Deemed income applies to financial assets including bank accounts, shares, and account based pensions. The same assets assessed for tax are also assessed by Centrelink, sometimes differently.
Impact of Work, Business and Rental Income on Benefits
The Work Bonus exempts $300 per fortnight of employment income from the income test. Rental property income is fully assessable for both tax and age pension purposes.
How Money Path Can Help You Reduce Tax in Retirement
Money Path specialises in retirement income and tax-efficient financial planning for Australians approaching retirement or already enjoying their retirement years.
Our services include:
Pre-retirement strategy (ages 55–67)
Tax-efficient transition to retirement plans
Account based pension setup and review
Capital gains planning around major asset sales
Personalised retirement income projections showing after-tax cash flow
We help you understand trade-offs based on your personal objectives. Contact Money Path to book a consultation and have your retirement tax position reviewed using your actual super balance, investments, and goals. Please obtain professional advice before implementing any strategy.
Frequently Asked Questions About Tax in Retirement
Q: Do I have to pay tax on my super when I retire at age 60? A: For most Australians in taxed super funds, pension payments and lump sums are tax free from age 60 once a condition of release is met.
Q: What is the best age to retire from a tax perspective? A: Most people find age 60–62 optimal, as this allows access to tax free super while potentially qualifying for senior tax offsets.
Q: How much can I have in super before paying tax? A: Up to $2 million can sit in tax free retirement phase. Amounts above this remain in accumulation and pay up to 15% tax on earnings.
Q: How do concessional contributions reduce tax? A: They provide a tax deduction at your marginal rate while only being taxed at 15% inside super—often saving 20%+ on each dollar contributed.
Q: Should I take super as a lump sum or income stream? A: An income stream generally provides ongoing tax free earnings on invested amounts, whereas a lump sum loses this benefit once withdrawn.
Tax outcomes differ depending on individual circumstances. Always seek professional advice before acting.
Next Steps: Putting a Tax-Efficient Retirement Plan in Place
You cannot control tax rules, but you can control your structure, timing, and strategy to pay less tax over your retirement.
Three immediate actions:
Review your super account—is it in accumulation or retirement phase?
Check contribution opportunities before 30 June
Map out future capital gains events (property or business sales)
Gather your most recent super statements, tax return, and investment summaries. Contact Money Path today for a personalised retirement income and tax review tailored to your financial planning needs.
