Account-based pensions (ABPs) are the most common way Australians turn their superannuation savings into income during retirement. They’re flexible, tax-effective, and designed to let your super remain invested even while you make withdrawals.
But retirees often have two big questions:
- “How much can I safely withdraw?”
- “How long will my super last?”
This guide breaks down how ABPs work, how minimum withdrawals are calculated, how investment returns and inflation affect your balance, and how to run your own numbers using the Account-Based Pension Calculator.
Quick Summary: What Is an Account-Based Pension?
When you retire or reach your preservation age and meet a condition of release, you can convert all (or part) of your superannuation into an account-based pension. This creates a retirement income stream.
With an ABP:
- Your super remains invested (shares, bonds, diversified portfolios, etc.).
- You must withdraw at least the annual minimum, based on your age.
- You can withdraw more than the minimum, but not less.
- Once you’re aged 60 or over (for most people), your withdrawals are tax-free.
- Investment earnings inside a retirement-phase pension are generally tax-free (0% tax rate).
The challenge is balancing how much you withdraw vs how long your money needs to last.
You can model this for your own retirement using the Account-Based Pension Calculator.
Minimum Drawdown Rates in Australia
The Australian Government sets minimum annual withdrawal rates depending on your age. These apply to the balance of your ABP at 1 July each year:
| Age | Minimum % |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95+ | 14% |
This means:
- A 66-year-old with $500,000 must withdraw at least 5% ($25,000) over the financial year.
- A 72-year-old with $800,000 must withdraw at least 5% ($40,000).
- As you age, your required minimum rises.
Why the minimum rises over time
The system is intentionally designed to ensure funds gradually pay out rather than accumulate indefinitely.
What if you want to withdraw more?
You can — there's no upper limit. But withdrawing too much risks your retirement savings running out earlier than expected.
How Your ABP Balance Changes Each Year
Your account-based pension balance moves through a simple cycle:
- Opening balance
- Earnings or losses (investment returns)
- Fees
- Withdrawals (minimum + any extra)
- Closing balance
In formula terms:
Closing Balance = Opening Balance + Earnings - Fees - Withdrawals
But in practice, the sequence and size of returns matter. For example:
- A 10% decline early in retirement has a much bigger impact than the same decline later (sequence-of-returns risk).
- Taking large withdrawals in a down year accelerates depletion.
- Keeping withdrawals closer to the minimum helps extend longevity.
You can simulate this year-by-year with the Account-Based Pension Calculator, including CPI-indexed withdrawals and investment market assumptions.
Tax Treatment: Why ABPs Are So Powerful After Age 60
Most retirees enjoy two key tax advantages:
1. Withdrawals are tax-free
If you're over 60 and retired (or have met another condition of release), your pension payments are tax-free.
2. Earnings are tax-free within the fund
Investment returns inside a retirement-phase ABP are taxed at 0%, compared to 15% in accumulation phase.
This combination boosts how long your money lasts compared to investing outside super.
Example: How Long Would $600,000 Last?
Let’s look at a simplified example to illustrate how ABP withdrawals behave over time. Assume:
- Starting balance: $600,000
- Age: 65
- Minimum withdrawal: 5%
- Investment return: 6% p.a. (balanced portfolio)
- Fees: 0.7%
- Withdrawals increase with CPI at 2.5% p.a.
Year 1 withdrawal:
5% × $600,000 = $30,000
Earnings:
6% × $600,000 = $36,000
Net change:
Earnings – fees – withdrawals ≈ small positive.
First few years might show slow growth or slight decline depending on market performance.
But once the minimum rises to 6%, 7%, and beyond, withdrawals accelerate, and the balance gradually reduces.
A balanced portfolio might sustain payments for 25–30 years depending on returns and withdrawal rates.
To see your own scenario, use the Account-Based Pension Calculator, which fully models:
- minimum drawdown rules,
- CPI-indexed withdrawals,
- variable investment returns,
- capital depletion over time,
- longevity risk,
- fees,
- tax-free pension phase.
The Big Question: “How Much Can I Safely Withdraw?”
There’s no single number that works for everyone — it depends on:
- starting balance
- investment portfolio & risk level
- age
- life expectancy
- annual spending
- whether you increase withdrawals with inflation
- whether you take only the minimum or more
- market performance in the early years
Three general rules of thumb
✔ Rule 1: Staying close to the minimum generally extends longevity
If your goal is to make your balance last as long as possible, withdrawing near the minimum (4–5–6%) is usually safer.
✔ Rule 2: Indexing withdrawals by CPI makes them sustainable
Most retirees want income that rises with living costs.
The calculator allows you to model CPI-indexed or fixed withdrawals.
✔ Rule 3: Higher equity exposure helps longevity — but increases volatility
Balanced or growth portfolios typically support longer payout periods, but come with more ups and downs.
Run these comparisons in the Account-Based Pension Calculator — it’s designed exactly for this type of decision.
Sequence-of-Returns Risk: The Danger Nobody Talks About
One of the biggest factors affecting how long your ABP lasts is the timing of market returns.
If you suffer downturns early in retirement while drawing income, you may permanently reduce your capital — even if the average long-term return is good.
This is called sequence-of-returns risk, and it’s why:
- withdrawing too much early can be dangerous
- staying diversified matters
- some retirees choose to hold a cash buffer for withdrawals
- modelling different investment scenarios is essential
The calculator helps you visualise this by showing how your balance changes year-by-year with CPI-indexed withdrawals.
How Fees Affect Retirement Longevity
Even small differences in fees compound over decades.
For example:
- A fund charging 0.9% vs one charging 0.5% may seem minor, but over a 25-year retirement this can reduce the ending balance by tens of thousands of dollars.
In retirement-phase pensions, every 0.1% counts because withdrawals are compulsory — you’re drawing down capital and incurring fees simultaneously.
Who an Account-Based Pension Is Suitable For
ABPs generally work well if you:
- are retiring or semi-retiring
- want flexible retirement income
- value tax-free earnings and payments
- have moderate–high comfort with investment risk
- want your super to stay invested rather than sit in cash
- want an income that can last decades
They are ideal for people in their 60s, 70s, and 80s who want a mix of growth + income.
When an ABP Might Not Be Right
Account-based pensions may not suit you if:
- you need guaranteed income (consider an annuity instead)
- you have very low risk tolerance
- you can't handle portfolio volatility
- you're uncomfortable with drawdowns in a falling market
- you need to retain funds in accumulation for tax or contribution reasons
- you may return to work and wish to keep contributing
If you’re unsure, seek financial advice — ABPs are powerful but require understanding of your spending needs, risk appetite, and long-term goals.
How to Model Your Own Retirement Income
The quickest way to understand how long your super may last — and what you can safely withdraw — is to build a personalised projection.
Use the Account-Based Pension Calculator to model:
- starting balance
- investment returns
- minimum drawdowns
- CPI-indexed withdrawals
- fees
- depletion timeline
- age at which balance reaches zero
You’ll see:
- year-by-year balances
- withdrawal amounts
- investment earnings
- how long your ABP may last
- how different withdrawal amounts change longevity
- how higher/lower returns affect the outcome
It’s one of the clearest ways to stress-test your retirement income plan.
Frequently Asked Questions About Account-Based Pensions
Are my ABP withdrawals tax-free?
If you’re over 60, yes — withdrawals are generally tax-free.
Do I have to withdraw more than the minimum?
No — but you can withdraw more if you choose.
What happens when I reach age 75?
Your minimum percentage increases. The calculator automatically applies next year’s minimum based on age.
Can my balance increase even though I’m withdrawing?
Yes — in years where investment returns exceed your total withdrawals + fees.
What happens if my balance hits zero?
Payments stop. ABPs cannot go negative. This is why modelling longevity matters.
Can I have more than one ABP?
Yes — many retirees run multiple pensions, often for tax and estate planning reasons.
Are earnings inside my pension taxed?
No — retirement-phase ABP earnings are generally tax-free inside the fund.
Key Takeaways
- Account-based pensions are flexible, tax-effective retirement income streams.
- Minimum withdrawal rates increase as you age.
- How long your super lasts depends heavily on withdrawals, returns, and inflation.
- Sequence-of-returns risk makes early retirement planning essential.
- Staying near the minimum often supports longer-term sustainability.
- Use the Account-Based Pension Calculator to model your own numbers.
Disclaimer: This article provides general information only and does not constitute personal financial, superannuation, or tax advice. You should seek professional advice before making decisions about retirement income streams.