Will I run out of super in retirement?

Last updated on 28 September 2023

Setting up your super to last as long as possible and understanding its interaction with the Age Pension are key to your savings not running out. [Source: Shutterstock]

Key points

  • Many people are worried they’ll run out of superannuation during retirement
  • However, in reality, a lot of people are left with additional funds when they pass away
  • There is a financial safety net system to support you if you do run out of super

While you work your employer puts money into your super account and the fund that manages your account invests the money for you to grow your savings until you withdraw them in retirement.

As you don’t know how long you will live after retiring and exactly what costs you will have during this period of your life, many people worry that their super will run out.

But is it actually a warranted fear?

Jacki Ellis, Head of Retirement at Aware Super, says it’s not only likely that your super will be running out, but there are also supports you can use if you do find yourself in this position.

“Longevity risk – the risk of running out of money during your retirement – is certainly a concern for a lot of people, but the experience of our members shows that for most people, it really needn’t be,” says Ms Ellis.

“About 55 percent of our members in the retirement phase draw down at or near their minimum rate, but most could actually draw a higher income sustainably and enjoy a better quality of life in retirement.

“Half of these members are expected to bequeath about half the super they had at retirement – further evidence they could be drawing down at significantly higher rates during their retirement years and enjoying a better lifestyle.”

If your super does run out, or your funds get low, there is also the Age Pension to help you maintain your retirement lifestyle.

“More than two in every three of our members will draw at least a part Government Age Pension, and we have more than 1 million members, so our membership is a good representation of the wider Australian population,” explains Ms Ellis.

“Many Australians qualify for Age Pension payments sooner than they realise. Research has also shown it can take them a considerable time to actually get around to applying – they’re often applying up to two years after they become eligible.

“This is significant because there is no way to get backdated Age Pension payments you would have received had you applied earlier.

“If you’re eligible for a full Age Pension and haven’t applied, you’re missing out on $1026.50 per fortnight, inclusive of supplements to help with costs such as utilities.”

Setting up your super to last as long as possible and understanding its interaction with the Age Pension are key to your savings not running out, so Ms Ellis has some suggestions around different account types and knowing how your super is tracking to ensure you’re putting yourself in the best possible position.

Account types

When you retire there are a number of different account types you can use to make the most of your super.

Ms Ellis says, “at Aware Super, most of our members who are eligible, open an account-based pension. This provides regular tax-free income, tax-free investment earnings — which can help your money last longer — and the flexibility to take extra cash payments if you need them.”

An account-based pension leaves your funds in the account until you need them, meaning you have savings stashed away for later in life.

Another option is to keep your existing super account, the accumulation account you have used while working, open and make lump-sum withdrawals only. 

“With this option, you’ll continue to pay 15 percent tax on investment returns, unlike you would with an account-based pension. However, you won’t have to meet the minimum income drawdown amount that applies to account-based pensions,” explains Ms Ellis.

If you are still working after you reach the ‘preservation age’ of 55, which is when you can access your super without restrictions, it might be best for you to have a transition-to-retirement account.

“This can be a good choice for some people as it enables you to receive an income from your super while continuing to work,” says Ms Ellis.

“You can also contribute more to your super at the same time as a tax-effective way of building your nest egg.”

You should contact your super fund to discuss your situation and choose the right option for you.

Keep track of your super

Even after you have retired, you need to remain in control of your super account and ensure you are getting the best returns on your investment.

Ms Ellis says Aware Super’s modelling shows that around one third of your income from super is likely to come from the investment returns you earn after you’ve retired. 

“That’s why it’s still critical that you’re with a strong-performing fund with competitive fees even when you’re no longer working,” she adds.

Speak to your fund for advice on what your super is doing and the best risk-return balance for you. Most super funds will offer this simple advice for free, and may charge for advice in more complicated situations.

“These services can help ensure you’re taking advantage of the tax-effective nature of saving inside the super system, and help you move into and through your retirement with peace of mind about the health of your finances and your ability to achieve your retirement goals,” Ms Ellis says.

Good guidance and advice are critical to a good retirement, particularly when it comes to matters such as starting a retirement income stream and ensuring you’ll receive everything you’re eligible for.

You can also go to a financial adviser for advice not only on your super but other potential income streams and assets you have, such as your home.

What else would you like to know about super? Tell us in the comments below.