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Beyond super: A guide to navigating retirement income

Superannuation is a big part of most Australians' retirement strategies, but many also choose to augment their savings with other income-producing investments. Here's a look at how these options can help retirees maintain their preferred lifestyle and protect against risk.

Retirement is a significant life milestone that many Australians look forward to, but it’s also a time of significant financial change. One of the most critical aspects of retirement planning is ensuring a steady and reliable income stream to support one’s lifestyle and cover expenses.

In Australia, there are several avenues to explore when it comes to creating a retirement income stream. This guide will explore these options to help investors make informed decisions about their financial future.

Finding the right mix

Superannuation is a big part of most Australians’ retirement strategies, but many also choose to augment their savings through exposure to sharemarkets, property and other investment sectors. By exploring other income-producing options, an investor can add valuable diversification to their retirement portfolio and protect against risk.

  • Here are eight methods for adding income to a retirement portfolio:

    1. Age Pension: The Australian government provides the Age Pension to eligible retirees. The Age Pension provides a regular income stream and can be a fundamental component of one’s retirement funding. To be eligible, an individual need to meet specific requirements, including around residency and age – for anyone born in 1957 or later, the Age Pension age is 67, and there are also income and assets tests.
    2. Superannuation: Most Australians have superannuation savings that they accumulate over their working years, which can be accessed upon retirement as a lump sum, an income stream or a combination of both. A popular choice is an account-based pension, which provides regular payments from the retiree’s super fund.
    3. Annuities: Annuities are financial products designed to provide guaranteed regular payments, often for life or a specified term. They can be purchased from insurance companies and offer stability and predictability in retirement income.
    4. Investments: An equity investment portfolio can generate income through dividends, interest, and capital gains. Carefully managing investments in retirement can provide a valuable income source.
    5. Part-time work: Many retirees choose to work part-time to supplement their income. It can also provide a sense of purpose and engagement during retirement. For those receiving an Age Pension, it’s important to keep in mind there is a $300-per-fortnight cap on such earnings to avoid affecting one’s entitlements under the income test.
    6. Property: Owning an investment property can generate rental income. It’s essential to consider property maintenance costs and the potential for rental market fluctuations.
    7. Dividend stocks: Investing in dividend-paying stocks can provide a reliable income stream. Australian companies often pay valuable franked dividends, which come with attached tax credits, making them an attractive option for retirees seeking income.
    8. Reverse mortgages: This financial product allows a homeowner to convert part of their home equity into regular payments or a lump sum. It’s essential to understand the long-term implications and potential impact on an estate.

    Risk and other considerations

    When navigating retirement income streams, it’s crucial to consider one’s individual circumstances and preferences. Here are some factors to keep in mind:

    1. Risk tolerance: Investors should determine their risk tolerance and how much exposure to market fluctuations they’re comfortable with. High-risk investments can yield greater returns but come with greater volatility.
    2. Income needs: Calculate essential and discretionary expenses to determine how much income will be required in retirement. Consider factors like healthcare, housing and leisure activities.
    3. Tax considerations: Be mindful of the tax implications of various income sources. Some income, such as the Age Pension and superannuation, may come with favourable tax treatment.
    4. Inflation: Over time, the cost of living can rise due to inflation. A retirement income stream should be able to keep pace with inflation to maintain the retiree’s purchasing power.
    5. Estate planning: It’s important to consider how income choices may affect an estate and what the retiree would like to leave behind for their loved ones. Some income options may have estate planning advantages.
    6. Professional advice: Consult a financial adviser who specializes in retirement planning. They can help create a tailored strategy that aligns with one’s investment and retirement goals.

    Navigating retirement income streams requires careful planning and consideration of various options, as well as the investor’s circumstances. Diversifying one’s income sources and understanding the benefits and risks associated with each can help ensure financial security in retirement.

    With proper planning, it’s possible enjoy the retirement years with confidence and peace of mind.

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