
**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](/calculators/account-based-pension)**.

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## 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](/calculators/account-based-pension)**.

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## 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.

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## How Your ABP Balance Changes Each Year

Your account-based pension balance moves through a simple cycle:

1. **Opening balance**  
2. **Earnings or losses** (investment returns)  
3. **Fees**  
4. **Withdrawals** (minimum + any extra)  
5. **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](/calculators/account-based-pension)**, including CPI-indexed withdrawals and investment market assumptions.

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## 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.

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## 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](/calculators/account-based-pension)**, which fully models:

- minimum drawdown rules,  
- CPI-indexed withdrawals,  
- variable investment returns,  
- capital depletion over time,  
- longevity risk,  
- fees,  
- tax-free pension phase.

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## 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](/calculators/account-based-pension)** — it’s designed exactly for this type of decision.

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## 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.

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## 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.

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## 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**.

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## 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.

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## 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](/calculators/account-based-pension)** 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.

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## 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.

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## 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](/calculators/account-based-pension)** to model your own numbers.  

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*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.*


A clear Australian guide to understanding account-based pensions — minimum drawdown rules, tax treatment after 60, investment risks, and how to model retirement income with our ABP calculator.

#ABP calculator

Account-Based Pensions in Australia: How Withdrawals Work, Minimum Rates, and How Long Your Super May Last