Many Australians don’t think about their super until the 5 – 10 years before their retirement. Suddenly understanding super and what benefits it provides at retirement become important. Before then it is often an investment that quietly builds in the background, and topped up, out of view. Up until this point Super has been about accumulation.
This way of thinking isn’t exclusive to members of industry or retail funds, either. Even those using SMSF structures have a tendency to focus on the growth of super, the climb towards their ‘magic number’.
It’s perfectly reasonable to take an accumulation-forward approach to super when you’re in your working years. However, it does mean that when the time comes and accumulation isn’t the main focus, you’re going to need to shift gears in your thinking. If super is no longer just a structure for accumulation, then what is it?
Answering that question starts with understanding the changes that turning 65 puts in motion:
The other day, a prospective client asked: “Do I have to take my super when I turn 65?”
The answer: No. Being aged 65 or over simply means you satisfy a condition of release. This means that you now have the right to access your super, it does not create an obligation to do so. Your super can stay in your account—and firmly in the accumulation phase—forever, if you wanted it to.
However, what does change when you’re 65 (or earlier) are your options.
From age 60, you’re able to access your super under a condition of release if:
You are aged 60 or over with no intention of ever working again on a part-time or full-time basis; OR
Have had an employment arrangement end after age 60.
When you turn 65, those conditions of release evaporate. At age 65, regardless of your work situation, you can access your super.
From here, there are three broad choices available.
You can withdraw your super in lump sums.
You can convert it into an income stream (also called an account-based pension).
The options on the table—to keep your super accumulating, or to draw it down through lump sum withdrawals or an account-based pension—are just the starting point. In practice, they open the door to a much broader set of possibilities.
This is often the stage where wealth management advice becomes particularly valuable. In most cases, achieving the best outcome isn’t about choosing one option over another, but about combining different strategies and structures in the right way.
To give you a sense of what a combined approach can look like, take this example:
Let’s say you’re over 65 and still working. Rather than leaving your super entirely in accumulation, you might improve your overall position by drawing a pension from part of your super while contributing back into a different super account. While you can’t contribute into a pension account itself, you can contribute into a separate accumulation account or into your SMSF (accumulation account).
The potential value of this approach lies in how super is taxed once part of your balance is is moved into pension phase. Once you commence an account-based pension, the investment earnings on the portion of your super supporting that pension are generally taxed at 0% within the fund.
As a rule of thumb, this can translate into an additional couple of percentage points in annual return. In other words, even if your investment mix stays the same, starting a pension can improve outcomes simply because the earnings on that portion of your balance are no longer taxed inside super.
I share this example to illustrate how super and pension rules can be combined to produce a better financial result. Whether this strategy, or any strategy, is appropriate depends on the your circumstances and needs to be considered in the context of your wider financial plan.
For instance, this approach would be ineffective if you had no need or plan for the income flowing from your pension. If that money was to simply accumulate in your personal bank account, the additional personal income tax you’d pay (on the earnings) could quickly erode, or even outweigh, the benefit of the 0% tax rate on your earnings inside super.
One part of this stage that’s often overlooked is the administration that sits behind accessing super.
Whether you’re withdrawing a lump sum, starting an income stream, or doing a combination of both, access doesn’t happen automatically. It needs to be formally actioned. Funds need to be notified. And the way money is accessed needs to be correctly recorded.
With industry and retail funds, this process is usually guided (or you access online forms), but it still involves making elections and completing the necessary paperwork. With SMSFs, the responsibility sits with the trustees.
It’s not a one-off exercise either. As your circumstances change—your income needs, priorities, or work patterns shift—the way you access your super should be reviewed to make sure the structure still reflects what’s actually happening.
Getting the administration right ensures your super is doing what you expect it to do, and that the decisions you’ve made are carried through in practice.
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Up until this point, super has tended to have a single, dominant purpose: accumulation. Whether you’re contributing to an industry fund, retail fund or actively managing an SMSF, the focus is largely the same: building the balance, growing assets, and working towards a future point in time.
Turning 65 marks the moment that purpose expands. It asks a different kind of question. Not just, how do I grow this? But what do I want this to do now? More importantly what do you want your life to look like and how does your super support you?
Understanding what turning 65 actually changes, and what it doesn’t, provides a clear foundation for answering that question. From there, the focus becomes how you want your super to support this phase of your life, and the ones that follow.
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If you’re approaching 65, or you’ve already reached it and are unsure how these choices apply to you, a considered conversation can help you better understand your options. Get in touch.