Planning for retirement can be daunting, but understanding your income streams and strategies can make the transition smoother. This blog will explore the main retirement income streams, why having a strategy is crucial, and how to maximise your retirement income.
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What are the main retirement income streams?
Retirement income can come from various sources. Some people may have just one retirement income stream, while others may have a number of different sources of income, which allows them to layer the retirement income.
Here’s a quick overview of the primary streams.
Superannuation income stream
Most people have had employer superannuation contributions and maybe also personal contributions invested in superannuation since the started working. By the time they are ready to retire, their superannuation contributions should have grown into a sizeable amount. This can be used to generate a tax effective income stream in retirement, subject to the underlying superannuation access rules.
Rental income from properties
Some people have one, or many investment properties. While these may have been set up to be negatively geared during their working life to reduce tax, once the investment loan has been paid off, the rental income can be used to assist with funding individual retirement needs. Consideration also needs to be given to fund property expenses and repairs during this period. Furthermore, rental income will also be considered taxable income.
Investment income from shares or managed funds
Many people may have some direct shares and/or managed fund investments. These investments can provide dividends or income distributions, which can be used to assist with funding retirement expenses or reinvested to compound returns.
Interest from bank accounts and term deposits
Most people will have a bank account, which may also include a high-interest savings account or term deposit for funds they are not needing to use over the short term. The interest from bank accounts and term deposits can also be used to assist with funding retirement expenses.
Age Pension
Many Australians, once they reach the age pension age of 67, may receive a full age pension or a part age pension. The amount of age pension you are eligible for is based on an income and assets test via Centrelink or Services Australia.
Why is it important to have a retirement income strategy?
A well-thought-out retirement income strategy ensures you have enough money to cover your expenses and enjoy your retirement years. It helps you manage risks, such as market volatility and inflation, and provides peace of mind knowing you have a plan in place.
What are some potential strategies to build retirement income streams?
Here are some strategies to consider, each suited to different needs and preferences.
Bucket Strategy
The bucket strategy involves dividing your retirement savings into three buckets based on when you’ll need to access the funds:
- Short-term Bucket: For immediate needs (1-2 years), keep funds in liquid assets like high-yield savings accounts and term deposits.
- Medium-term Bucket: For needs in the next 3-7 years, invest in more conservative investments.
- Long-term Bucket: For needs beyond 7+ years, invest in growth assets like shares, property, managed funds.
Who it suits: This strategy is ideal for those who want a balanced approach to managing risk and ensuring liquidity.
Minimum withdrawals from Account Based Pensions / Super Income Streams
This approach involves drawing only the minimum required pension from your account-based pension or superannuation income stream. The minimum drawdown rates increase with age — starting at 5% from age 65 and rising as you get older to 14% for those aged 95 and over.
Who it suits: This strategy is suitable for retirees who prefer a predictable income stream and want to preserve their capital for as long as possible, potentially leaving a legacy or maintaining flexibility for future needs.
Annuities or Lifetime Pensions
Annuities and lifetime pensions are structured retirement income products that provide a guaranteed income for a fixed term or for life. Purchased with a lump sum from your superannuation, they offer financial certainty by converting your savings into a consistent income stream. Payments can be fixed or indexed to inflation, and some products include reversionary benefits for a spouse. While annuities offer peace of mind, they are generally less flexible than account-based pensions, as the capital is typically locked in.
Who it suits: These products are ideal for retirees who prioritise income certainty and want to reduce the risk of outliving their savings. They are especially suitable for those who are less comfortable with market volatility and want to complement the Age Pension with a stable, private income stream.
Layered income approach
The layered income approach involves building a retirement income plan using a combination of strategies and products to meet different income needs over time. This may include a mix of account-based pensions, annuities, rental income and investment portfolios. For example, a retiree might use the bucket strategy to manage short- and medium-term needs, purchase a lifetime annuity to cover essential living expenses, and invest the remaining funds in a diversified portfolio to support long-term growth.
Who it suits: This approach is ideal for retirees who want a flexible, tailored solution that balances income certainty with growth potential. It suits those who are comfortable managing multiple income sources and want to create a more resilient and adaptable retirement plan.
How to maximise different retirement income streams?
Creating a sustainable retirement income is about more than just drawing from your super. By combining different income streams, you can improve financial security, manage risk, and maintain flexibility throughout retirement. Here’s how to make the most of each stream:
How to maximise the Bucket Strategy
The bucket strategy helps manage short-, medium-, and long-term needs by allocating funds into different “buckets” based on time horizon.
To maximise this strategy:
- Keep 1–2 years of living expenses in cash or high-interest savings and term deposits for easy access.
- Use more conservative investments for medium-term needs (3–7 years).
- Invest long-term funds (7+ years) in growth assets like shares or managed funds to outpace inflation.
- Regularly review and rebalance your buckets to ensure they remain aligned with your spending needs and market conditions.
How to Maximise Account-Based Pensions / Super Pensions
Account-based pensions offer flexibility and control over your retirement income, but they require careful management.
To get the most out of them:
- Withdraw only the amount of income you need or the minimum required amount to preserve your capital and extend the life of your pension.
- Consider superannuation platforms which allow you to direct dividends and distributions to a cash account within super, so you do not have to sell investment units to fund pension payments, especially during periods of volatility.
- Monitor your investment mix to ensure it aligns with your risk tolerance and income needs.
- Be aware of age-based drawdown rates, which increase over time (starting at 4% from age 60, increasing to 5% at age 65, and continuing to increase to 14% at age 95).
How to maximise Annuities or Lifetime Pensions
Annuities provide guaranteed income, which can be especially valuable for covering essential living costs.
To maximise annuities:
- Use them to cover core expenses like housing, food, and healthcare.
- Consider index-linked annuities to protect against inflation.
- Combine annuities with more flexible income sources (like account-based pensions) to balance security and growth.
- Shop around — compare providers and features to find the best fit for your needs.
How to maximise the layered income approach
The layered income approach blends multiple strategies to create a diversified and resilient retirement plan.
To maximise this approach:
- Use annuities for essential core expenses, account-based pensions for lifestyle spending, and growth investments for long-term needs.
- Align each layer with your risk tolerance and time horizon.
- Reassess regularly to adapt to changes in the market, your health, or your lifestyle.
- This strategy works well as a customised blend of the bucket strategy, annuities, account-based pensions, rental income, and other investments — offering both stability and flexibility.
How to choose the right retirement income stream?
Choosing the right income stream depends on your lifestyle goals, risk tolerance, and financial situation. Consider:
- How much income you need and when you’ll need it.
- Whether you prefer certainty or flexibility.
- Your health, life expectancy, and whether you want to leave a legacy.
- The impact of tax and Centrelink entitlements.
A combination of income streams can often work best — giving you the confidence to enjoy retirement without worrying about running out of money.
How can a retirement planner help me maximise retirement income streams?
At Solace Financial, our experienced financial planners are committed to helping you build a retirement planning strategy that aligns with your values, goals, and lifestyle. We offer personalised advice to ensure your financial plan reflects what matters most to you — whether that’s financial freedom, peace of mind, or leaving a legacy.
We take the time to understand your full financial picture, including your income needs, risk tolerance, and long-term aspirations. From there, we design a tailored retirement income strategy that may include a mix of superannuation, account-based pensions, annuities, and other investment and income options — all structured to maximise your income and minimise risk.
Ready to take the next step towards achieving your financial goals? Getting started is easy! Simply contact our office or book a free consultation with one of our financial advisers today.
Common mistakes to avoid
- Not diversifying the assets within your income streams.
- Underestimating expenses in retirement.
- Failing to adjust your plan for inflation and market changes.
- Ignoring tax implications of different income streams.
- Taking out more income than necessary can reduce the effectiveness of your retirement assets, leaving less invested to grow over time.
Avoiding these pitfalls can make a significant difference in how long your retirement savings last.
Book a consultation with an experienced financial adviser
Ready to take the next step? Book a consultation with a financial adviser who understands the complexities of retirement income planning and can help you build a strategy that works for you.
Retirement income stream FAQs
How can I generate a reliable income in retirement?
Diversify your income sources, invest wisely, and consider if guaranteed income products like annuities are suitable for you.
What happens to my retirement income streams if the market crashes?
Diversification and having a mix of guaranteed and variable income streams can help mitigate the impact of market volatility.
How are retirement income streams taxed?
Tax treatment varies. Superannuation income streams may be tax-free after age 60, while other investment income may be taxable depending on your circumstances.
Do I need to declare my retirement income streams?
You must declare all assessable income on your tax return. However, non-assessable, non-exempt income — such as most superannuation income streams received after age 60 — generally does not need to be declared.
What retirement income strategies work best during high inflation periods?
Investing in assets that typically outpace inflation, such as shares and property, can help protect your purchasing power. Index-linked annuities can also provide inflation protection.
How can I protect my retirement savings from market volatility?
Diversify your investments, maintain a cash buffer, and consider guaranteed income products to reduce reliance on market performance.
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