Do you still have to worry about tax in retirement?
Written and accurate as at: Feb 12, 2025 Current Stats & Facts
There are plenty of things you won’t have to worry about once you retire, but depending on your situation, tax might not be one of them. Below, we look at the various ways tax applies to your super, investment income, and other areas of your finances.
Super withdrawals
The good news is that super withdrawals are generally tax-free once you retire at or over age 60 and that applies whether you receive it as a lump sum or an income stream. If you opt for the latter, tax on investment earnings (the money your super generates while it remains invested) will also be zero, down from the 15% tax that applied during your working years.
You will, however, have to declare any income your super goes on to generate after it’s been withdrawn. For example, if you invest the money in shares or place it in a high-interest savings account, anything it earns will be taxed at your marginal tax rate.
Transition to retirement income streams
If you’re aged between 60 and 65 and not yet ready to leave the workforce, you can commence a transition to retirement (TTR) income stream. This allows you to gradually reduce your work hours while tapping into your super to make up for the reduction in salary.
TTR payments are treated the same as account-based pensions, in that withdrawals are typically tax-free. One difference, however, is that any investment earnings generated within your fund will continue to be taxed at 15%. This will be the case until you turn 65 and your TTR income stream will be transferred to an account-based pension.
Accessing super before you turn 60
Early access to super is allowed in very limited circumstances — such as if you’re experiencing severe financial hardship or need the money urgently to pay for medical treatment for you a dependant — but the tax exemptions afforded to people aged 60 and up generally don’t apply here. One exception, however, is if you have a terminal medical condition, in which case the payment might be completely tax-free.
Capital Gains Tax on investments
Capital gains tax (CGT) applies to retirees just the same as it does to everyone else, meaning that any profits from the sale of assets (such as shares or investment property) will form part of your taxable income. That said, there might be exemptions available to you depending on your circumstances.
When selling a property, for example, you won’t have to worry about CGT if:
- It was your main residence
- It was purchased before CGT was introduced on 20 September 1985 (unless major improvements have been made)
- It satisfies the six year rule (in which case the property you weren’t living in can still be considered a main residence).
There are also ways to reduce the amount of CGT owed, such as using any capital losses to offset your capital gains, or taking advantage of the 50% discount that applies when you’ve held an asset for 12 months or more.
The Age Pension
So long as the Age Pension is your only source of income in retirement and no tax is withheld from it, you generally won’t have to lodge a tax return.
But if you receive other forms of income — such as rent from an investment property, dividends from shares, or interest on savings — all sources including your Age Pension payment will have to be declared. Depending on how much you earn, you might owe tax at the end of a financial year.
Your super death benefit
It’s also worth mentioning your super death benefit, as your beneficiaries might have to pay tax on it. This will depend on whether they receive it as a lump sum or an income stream, as well as whether they are considered a dependent for tax purposes.
A ‘tax dependent’ typically refers to:
- Your spouse or de facto partner
- Children under the age of 18
- Someone who is financially dependent on you
- Someone with whom you have an interdependency relationship
Generally, tax dependents won’t pay any tax on lump sums they receive. Non-tax dependents, however, will be taxed concessionally at a rate of 15% plus the Medicare levy.
A recontribution strategy, where you withdraw some of your super and re-contribute it, can help to reduce any tax paid on super death benefits by converting the taxable components of your super into tax-free components. But rules and limits apply here, so make sure to speak to a financial adviser before deciding whether to go down this route.
