One of the most common questions Australian retirees face is whether to draw retirement income from their super fund or from non-super investments first. The answer can mean thousands of dollars difference in after-tax income each year, and it significantly affects your Age Pension eligibility and what you leave behind for family. Understanding how superannuation fits into your broader financial position is critical, which we explore in how superannuation fits into your overall financial plan.
Answering the question upfront: which should you draw from first?
For most Australians turning 67 between 2026 and 2030, drawing from superannuation first is often the more tax-effective choice—but it’s not universal. Once you’re over 60 and have met a condition of release (typically retirement), payments from an account based pension are tax free. Understanding when you can access your super is critical, which we explain in accessing your superannuation in Australia. This contrasts sharply with non-super investments like term deposits or shares, where interest and dividends are taxed at your marginal tax rate.
The Australian Taxation Office provides detailed guidance on conditions of release and retirement phase rules.
There’s no one-size-fits-all rule. Many retirees start with tax-effective super income streams while letting non-super investments grow, then adjust as Age Pension tests and estate planning considerations change over time.
A worked example: couple turning 67 in July 2026
Consider a couple, both turning 67 in July 2026, with:
$700,000 combined super (split evenly, in retirement phase)
$300,000 in non-super investments ($150,000 cash at 4% interest, $150,000 shares yielding 5% franked dividends)
A paid-off home
Income needs of $60,000 per year after tax
Strategy | Approach | 5-Year Projection |
|---|---|---|
A: Super first | Draw $60,000 tax free from super | Super: $550,000 / Non-super: $380,000 |
B: Non-super first | Draw from non-super (incurs ~$8,500 tax) | Super: $620,000 / Non-super: $320,000 |
C: Blended | $40,000 super + $25,000 non-super | Super: $580,000 / Non-super: $350,000 |
Strategy A preserves more money overall due to tax savings of $5,000-$10,000 annually. However, the “best” order depends on your income needs, tax brackets, Age Pension tests, and whether leaving assets to children matters. Ensuring your super balance is sufficient to support your retirement is equally important, which we explore in do I have enough super for comfortable retirement in Australia.
Key rules applying from 1 July 2025 to 2030 include the transfer balance cap of $2.0 million and the Age Pension age fixed at 67 for those born after 1 January 1957.
Understanding your retirement income buckets (super vs non-super)
Your retirement savings sit in two distinct “buckets” with very different tax treatments. Understanding these differences is essential before deciding which to draw from first.
The superannuation bucket
Feature | Accumulation Account | Retirement Phase Account |
|---|---|---|
Tax on earnings | Up to 15% | 0% (within transfer balance cap) |
Access | Limited until preservation age | Flexible withdrawals |
Minimum drawdown | None | Yes (4% at 65-74, rising with age) |
Typical products include account based pensions (ABPs), transition to retirement income streams, and lifetime pensions. Once in retirement phase, your super balance earns investment returns completely tax free up to the $2.0 million lifetime limit. Your total super balance also plays a key role in determining contribution opportunities and tax strategies, which we explain in understanding what is total super balance and why it matters.
The non-super investment bucket
This includes bank accounts, term deposits, listed shares, ETFs, investment property, and managed funds held in personal names. Earnings are taxed at your marginal tax rate—potentially up to 45% plus Medicare levy. Capital gains receive a 50% discount if assets are held over 12 months.
Why the order matters
The draw order affects:
After-tax income: Different tax treatments can change your income by thousands per year
Age Pension: Both buckets count under assets and income tests, but drawdown timing matters
Estate planning: Super death benefits tax (15-17% to non-dependent children) versus often tax free non-super inheritances. The tax treatment of super withdrawals can vary significantly depending on structure, which we explain in tax-free vs taxable components of super.
Example: A 68-year-old single retiree with $400,000 in super and $200,000 in non-super needs $40,000 annually. Drawing from super incurs $0 tax. Drawing from non-super could mean $4,800 in income tax—a shortfall that compounds to over $25,000 across five years.
When it can make sense to draw from super first
Once you reach 60 and meet a full condition of release, super offers compelling tax advantages that often make it the logical first choice. Choosing the right super structure is also critical in maximising these outcomes, which we explore in choose the right super fund for retirement in Australia.
Tax benefits of super-first
Account based pension payments are tax free once you’re 60+
Investment earnings on up to $2.0 million in your retirement phase account are tax free
Non-super investments paying interest or dividends face higher tax rates at your marginal rate
Situations favouring super-first
Drawing from super first typically makes sense when:
You’re over 60, retired, and your super is in retirement phase
You and/or your partner already exceed the tax free threshold from other income (rental income, part-time work)
You want to simplify your estate by gradually depleting super that may attract death benefits tax for adult children
Example: A 66-year-old retiree in 2026 with $800,000 in retirement phase super and $150,000 in bank deposits needs $55,000 per year. Drawing this as an income stream from super means $0 tax. Taking $55,000 from a mix of non-super sources would incur approximately $7,500 in tax.
Age Pension considerations
Running down super (counted under the assets test from age 67) may, over time, increase your Age Pension entitlements. The interaction between your super and Centrelink benefits can be complex, which we explain in understanding superannuation and Centrelink interaction. However, Centrelink counts most financial assets similarly—whether super or non-super—so the benefit depends on your specific circumstances and spending patterns. You can also refer to Services Australia for official guidance on Age Pension eligibility and means testing.
When it can make sense to draw from non-super investments first
There are legitimate scenarios where drawing from non-super investments first produces better outcomes.
Key situations for non-super-first
Under 60 with a condition of release: If you retire at 58-59, super withdrawals from the taxable component may attract tax, while non-super drawings can be managed with capital gains planning
Small non-super, large super: Preserve tax free super growth as long as possible
CGT planning opportunities: Selling shares in stages when personal income is low to use the 50% CGT discount and tax free threshold. Strategies like this should be carefully coordinated with contribution limits and tax rules, including opportunities such as carry forward contributions.
Example: A 59-year-old retires in September 2026 with $600,000 in accumulation super and $180,000 in personal ETFs (cost base $120,000). Needing $50,000 per year until 60, drawing from non-super with careful CGT planning results in approximately $3,500 total tax—versus $6,000+ if taking a lump sum from super.
Estate planning angle
Super death benefits to a spouse are generally tax free. Non-super assets inherited by adult children often pass tax free on receipt, though embedded capital gains may remain. Some retirees deliberately keep super intact for its tax-effective compounding while spending down taxable term deposits first.
Risk to watch: Holding too much in taxable investments while ignoring tax free super pension capacity means paying more annual tax than necessary.
Age Pension, Centrelink tests and sequencing your withdrawals
From age 67, your withdrawal sequencing directly affects Age Pension eligibility and other benefits like the Commonwealth Seniors Health Card.
Current Age Pension rules
As at 2026, Age Pension age is 67 for those born on or after 1 January 1957. Most readers retiring between 2026 and 2030 will already be 67 or approaching this age.
Understanding Centrelink tests
Test | How it works |
|---|---|
Assets test | Full pension for homeowner couples under ~$1,031,000 assets (March 2026, indexed) |
Income test | Deeming rates: 0.25% on first $103,800 combined, 2.25% above |
Account based pensions started after 1 January 2015 are subject to deeming rules—Centrelink calculates deemed income regardless of actual earnings. These rules are critical when structuring your retirement income strategy and should be reviewed regularly.
How withdrawals affect tests
Reducing financial assets (super balance, bank accounts, investment portfolios) can reduce deemed income and potentially increase Age Pension
Selling investment property temporarily raises assessable assets until funds are spent
Example: A couple, both 68 in 2027, with $550,000 combined super (retirement phase), $120,000 in non-super investments, and a $900,000 home. Over five years:
Super-first strategy: Super drops to $450,000, potentially lifting pension by $20-50/week
Blended approach: Optimises at approximately $435/week
Because Age Pension rules and deeming rates change, sequencing should be reviewed every 1-2 years.
Putting it together: building an income order that suits you
Rather than making one permanent decision, think of your withdrawal strategy in stages.
A 5-step framework
Map all assets: Super by account type, non-super investments, rental income, cash reserves
Define income target: After-tax annual amount for at least 5 years (e.g., $65,000 indexed to 2.5%)
Estimate tax outcomes: Model different combinations using realistic tax brackets and Medicare levy
Check Age Pension impact: Use government calculators at servicesaustralia.gov.au
Factor in estate wishes: Who inherits what, and flexibility for health or aged care costs
Think in stages
Stage | Age Range | Typical Focus |
|---|---|---|
Early retirement | 60-70 | Higher spending on travel, lifestyle |
Settled retirement | 70-80 | Stable, regular income needs |
Later life | 80+ | Health, care, and estate priorities |
A blended approach
Many advisers recommend:
Tax free super income stream for core ongoing income
Top-up from non-super for large one-off expenses (car, renovations, helping children)
Periodically rebalance to stay within the transfer balance cap and manage risk
Stage example: A 65-year-old single homeowner in 2026 with $650,000 super and $150,000 non-super might draw $50,000 from super in Stage 1 (tax free travel spending), blend $40,000 in Stage 2, then preserve super for medical costs in Stage 3 while using remaining non-super for liquidity.
How Money Path can help you decide which income to draw first
Money Path specialises in helping Australians aged 55-75 with combined super and non-super investments between $300,000 and $3 million navigate these complex decisions.
What Money Path offers
Detailed modelling: Compare withdrawal sequences over 20-30 years, showing projected super balance, after-tax income, and Age Pension entitlements
Scenario analysis: Model specific dates like retiring in July 2026 vs July 2028, or starting a pension the day after your 60th birthday
Tax-aware strategies: Coordinate asset location with your drawdown order for maximum tax savings
Money Path advisers consider your transfer balance cap usage, interaction between rental property income and super pensions, and your preference for stable income versus growth.
The outcome
You receive a written, personalised retirement income blueprint with:
Clear recommendations on when to start or adjust your super income stream
Guidance on selling down non-super investments
Plain-language explanations of tax, Age Pension, and estate implications
Next step: Book a retirement income strategy session and gather your latest super statements, investment summaries, and Centrelink letters before meeting with a financial advisor.
Frequently asked questions: drawing from super vs other investments
If I’m 60 or over, should I always draw from super first?
Not automatically. While super income is usually tax free from 60, the right order depends on other income sources and estate goals. A 62-year-old still working part-time earning $30,000 might pay 32.5% tax on non-super dividends—making super-first even more attractive—but someone with zero other income might use non-super to access CGT discounts.
Does drawing money from super reduce how much Age Pension I get?
Centrelink looks at assets and deemed income, not withdrawals directly. Spending down balances reduces your assets over time and may increase Age Pension. A 70-year-old part-pensioner spending $20,000 per year from super could potentially receive an extra $100/week in pension as their retirement balance falls.
What happens if I exceed the transfer balance cap when starting a pension?
From 1 July 2025, the general transfer balance cap is $2.0 million. Money above this must stay in your accumulation account where earnings are taxed at 15%. This affects whether you should draw from super or non-super first to preserve cap space.
Is it better to take a lump sum from super to pay off my mortgage, or start an income stream?
Consider a $150,000 mortgage at 5.5% interest versus keeping $150,000 invested in super at 5% growth. The lump sum payment saves $8,250 annually in interest but loses approximately $7,500 in super growth—plus may reduce Age Pension by $50/week. The decision depends on your specific cash flow needs.
Can I keep adding to super after I’ve started drawing a pension?
You cannot contribute directly to an existing retirement account, but you can contribute to a new super account in accumulation (up to age 75, subject to concessional contributions and non concessional contributions caps) and later commence a new pension. Salary sacrifice remains available if you’re still working.
How often should I review my withdrawal strategy?
At minimum every 1-2 years, and always after law changes or life events like downsizing, receiving an inheritance, or major market moves. Money Path can assist with periodic reviews to ensure you save the maximum amount possible.
Key takeaways and next steps
The “super first or investments first” question has no universal answer—the best strategy balances tax, Age Pension, and estate outcomes over your retirement horizon
Over 60 and retired often favours using tax free super income streams for core spending
Non-super provides flexibility for large one-off costs and tax planning opportunities
Sequencing should adapt as markets, legislation, and personal circumstances change
Avoid ad hoc withdrawals—adopt a planned, multi-year income strategy reviewed regularly
Prepare for advice by collecting recent super statements, investment summaries, loan details, and Centrelink information so an adviser can provide precise guidance tailored to your life
- If you want clarity on how to structure your retirement income for tax efficiency, Age Pension optimisation and long-term security, you can learn more about our approach on our superannuation advice page or contact our team to discuss your situation in more detail.
