The key is understanding how different superannuation phases and income streams are taxed.
Utilise Retirement Phase Income Streams
One of the most effective ways to reduce tax in retirement is to use retirement phase income streams, such as an account-based pension.
Once a super income stream is in retirement phase (after meeting a full condition of release), earnings on the assets supporting that pension are generally tax-free, up to your personal Transfer Balance Cap.
This creates one of the most tax-efficient investment environments available in Australia.
It is important to note that not all income streams are automatically tax-free. For example, a Transition to Retirement income stream that has not met a full condition of release continues to have its earnings taxed at up to 15%. The tax outcome depends on the structure and your personal circumstances.
Structure Assets in the Most Tax-Efficient Environment
Income earned outside super — such as dividends, rental income and interest — is taxed at your marginal rate.
For retirees with substantial personal investments, strategies may include:
- Contributing to super (if eligible)
- Equalising balances between spouses
- Reviewing asset ownership structures
Moving investments into a more concessional tax environment, where appropriate and permitted, can materially improve long-term outcomes.
Manage Withdrawal Sequencing Carefully
The order in which assets are drawn down matters.
For example, drawing income from tax-free pension accounts first may reduce taxable income compared to selling assets in personal names. Alternatively, spreading larger withdrawals across multiple financial years may prevent pushing yourself into a higher marginal tax bracket.
Each situation is different, and modelling is critical.
Monitor Medicare Levy and Income Thresholds
Retirees may still pay Medicare levy depending on taxable income levels. Higher-income retirees without appropriate private health insurance may also face Medicare levy surcharge.
Managing taxable income through structured withdrawals can help keep income within desired thresholds.
Align Tax Strategy with Estate Planning
Tax planning does not end during your lifetime. Superannuation paid to adult children may attract death benefit tax, depending on the taxable components of your super.
Strategies implemented before death — such as recontribution strategies or spouse equalisation — can reduce tax leakage for the next generation.
Reducing tax legally in retirement is not about aggressive schemes. It is about understanding the rules and structuring within them.
With proper planning and regular review, retirees can improve after-tax income, extend capital longevity and protect family wealth.
Disclaimer: This information is general in nature and does not consider your personal objectives, financial situation or needs. You should consider seeking professional advice before making any financial decisions. Past performance is not a reliable indicator of future performance.
