Retirement isn’t just a milestone; it’s a new chapter. And like any chapter worth writing, it deserves a solid financial foundation. With Australians living longer and expecting more from their retirement years, the question isn’t just when to retire, but how to fund the lifestyle you’ve worked hard to build.

At Shadforth, we help you make informed decisions about your retirement income options. So below, we explore three key retirement income structures available in Australia, each with distinct features, limitations and strategic roles.

Understanding Retirement Income Streams

A retirement income stream is simply a way to convert your accumulated wealth - whether through superannuation or other investments - into regular payments that support your lifestyle once you stop earning a salary.

Three options available to Australian retirees are :

• Innovative Retirement Income Solutions (IRIS)
• Account-Based Pensions
• Annuities

Here’s an overview of each.

1. Innovative Retirement Income Solutions (IRIS)

In recent years, the Australian Government conducted a review of the retirement income system. The Retirement Income Review found that while the system is broadly effective, many retirees face challenges in turning their super into reliable income, especially as they live longer and navigate complex choices.

To address this, the Government introduced the Retirement Income Covenant in 2022. This requires super funds to help members plan for retirement income, not just accumulate savings. It’s a shift in focus- from growing your super to helping you use it confidently and sustainably in retirement.

IRIS products were developed in response to this shift. They aim to give you income for life, while keeping your money invested and protecting you from the risk of outliving your savings.

These solutions are designed for those who want their retirement income to work harder - balancing growth potential and the flexibility of access to capital with the security of lifetime payments.

Key Features:

• Income that lasts as long as you do
• Exposure to market-linked returns
• Designed to provide a blend of guaranteed income and investment flexibility

Considerations:

• Limited access to lump sums
• Income may vary depending on performance
• Complexity may require deeper understanding or advice

IRIS products generally suit retirees seeking a balance between income certainty and investment flexibility, especially those concerned about outliving their savings. These products are designed to work alongside other income streams, such as an account based pension, to ensure that you’ve got the right balance between access to your retirement savings when and as you need it, while providing the certainty of income for life.

2. Account-Based Pensions

Account-based pensions are currently the most common retirement income stream in Australia – offering flexibility, control, and access.

You can commence an account-based pension either when:

• you’ve reached your preservation age and you haven’t retired (known as a ‘transition to retirement’ or TTR pension)
• you meet the superannuation definition of retirement, or
• when you’ve met another full condition of release – such as turning age 65, permanent incapacity, or certain compassionate grounds.

Transition to retirement pensions can only pay you a maximum of 10% of your account balance each year, and the investment earnings are taxed like a super accumulation account, at a maximum tax rate of 15%. However, once you’ve retired or met another full condition of release you can start a ‘retirement phase’ account based pension. There’s no upper limit on how much you can withdraw in retirement phase (annual minimums are set based on your age), and you can withdraw lump sums if you need a bit extra. For more information about transition to retirement pensions, visit the Australian Government’s MoneySmart website.

The great part is that you can keep your retirement savings invested, giving your funds the opportunity to keep growing even after you’ve retired. Even better, the investment returns in a retirement phase pension are tax-free.

Key Features:

• Full access to your capital in a retirement phase pension (TTRs have different rules)
• Wide investment choice
• Adjustable income to suit your lifestyle

Considerations:

• Market volatility can impact returns and the value of your investment
• No guaranteed income – your income payments, additional withdrawals and investment returns directly impact your account balance, and how long your money will last
• Risk of running out of money over time
• Ideal for those who value control, want to access lump sums or prefer to manage their own investment strategy .

3. Annuities

Annuities are structured to deliver certainty. Offered by life insurers, they provide guaranteed income for a fixed term or for life - regardless of market conditions.

They can provide stability and certainty when it comes to retirement income.

Key Features:

• Guaranteed income for life or a set period
• Depending on the type of annuity, you can set your payment amount either at the time you purchase it, or it may vary depending on your investment returns
• Protection against market downturns
• May provide optional inflation protection and death benefits

Considerations:

• Limited access to capital
• Lower investment flexibility
• May offer lower returns, due to less risky investments (the trade off for income certainty) compared to market-linked options such as account based pensions
• You generally agree on payments terms upfront, with more limited options for flexibility down the track.

Annuities are generally suited to retirees who prioritise stability, simplicity and longevity protection.

Comparing the Options

Planning for your best life

Retirement planning isn’t just about numbers - it’s about aligning your financial strategy with your lifestyle goals. Here are a few principles to consider:

• Start early - The earlier you plan, the more options you’ll have.
• Diversify - Combining income streams can offer both flexibility and security.
• Review regularly - Your retirement strategy should evolve with your life.
• Get expert guidance - A tailored financial plan can make all the difference.

If you’re ready to explore how these options could fit into your broader wealth strategy, we’re here to help. Let’s talk about how to create your best life with confidence, clarity and a plan that’s built around you.

Disclaimer: This information in this article is general in nature. It has been prepared without considering your particular financial needs, circumstances and objectives. You should consider the appropriateness of the information having regard to your own circumstances and consult a financial adviser before making any investment decisions.
SHADFORTH disclaimer: https://www.sfg.com.au/disclaimer