One of the most common questions high-net-worth individuals ask is how to manage their superannuation and overall wealth position effectively when retiring with a significant balance.
For someone with a large overall asset pool, the opportunities in retirement are considerable, but navigating tax rules and optimising retirement income streams requires careful planning.
Preferably, most of this nest egg should be held in superannuation, where possible, as this structure typically results in the lowest tax liability. However, it’s likely that other structures will also be utilised for the overall strategy.
Why do I need a retirement plan?
A retirement plan is essential to ensure you can transition into retirement with confidence. It helps define your income goals and the actions required to achieve them. A strong retirement plan should include:
- Identifying the amount that can be transferred into a tax-free pension account
- Strategically managing the funds that remain in the accumulation phase to minimise tax while maximising returns
- Establishing a sustainable drawdown strategy that meets your lifestyle needs
- Utilising investment structures outside of superannuation, such as Family Trusts or Companies, to hold assets and manage tax distribution to beneficiaries
- Planning for long-term financial security, including succession planning and wealth preservation
A retirement plan helps you address key lifestyle questions, such as when you want to retire or whether you’ll ease into part-time work, how you envision spending your time and the funds required for those activities. It also helps you determine what a comfortable retirement looks like based on your preferences and expected expenses. This may include engaging in leisure activities, owning a luxury car, enjoying domestic and international travel with business class flights, maintaining lifestyle costs with access to quality goods and services or even assisting children in purchasing their first home.
How much of your super can be converted to a tax-free pension?
If you retire at 60, you may be able to commence a pension from your superannuation balance. Should you remain employed, you can commence this pension after turning 65 or start a Transition to Retirement Pension in the interim.
The superannuation Transfer Balance Cap is the total amount that can be transferred into a tax-free pension account. Currently, the cap is set at $2 million (as of 1 July 2025).
For someone with a $4 million super balance:
- $2 million can go into a tax-free retirement phase pension account
- The remaining $2 million must stay in the accumulation phase, where earnings are taxed at 15%
This setup allows you to maximise your tax-free income stream while keeping the remaining funds invested in a concessionally tax environment.
Please note that there is pending Division 296 legislation that may result in a higher tax rate for those with more $3 million held in superannuation. For those impacted by this, there may be further strategies to consider, such as whether to maintain all of the balance over $3 million in superannuation or a trust or personally or give to children/charity. Managing this strategy will depend on your overall personal circumstances and personal tax position.
How much income can you draw from your pension?
Once in the pension phase, retirees must draw a minimum percentage of their account balance annually.
This percentage increases with age and is 4% of the account balance from age 60 and 5% from age 65.
For a $2 million pension account, at age 60, this equates to $80,000 of income per annum, tax-free.
While it is possible to draw a larger pension, we would generally recommend that further income requirements are taken from funds outside of super in the first instance, from the accumulation phase in the second instance and then from the pension phase.
You should carefully plan before starting a pension and weigh the pros and cons of commencing it. If you already pay the top tax rate outside of super and do not need to access your funds, you may benefit more by not starting a pension, as this will allow you to keep your funds within the superannuation environment without mandatory withdrawals. Make sure you seek appropriate advice and guidance to manage this tax effectively.
Can I make further contributions to my superannuation?
Provided your taxable income warrants it, you may be able to make a concessional contribution to super of up to $30,000 p.a. From age 67-74, you must meet a work test to contribute.
You can also make non-concessional contributions (which do not provide a tax deduction) of $120,000 p.a. up to the age of 74, even if you are not working, but only whilst your total super balance is below $2 million.
You might still be able to make a downsizer contribution even if you’re over 74 and your super balance exceeds $2 million. This contribution is linked to selling your residential home, allowing each person to contribute up to $300,000 into their super. To qualify, you must be over 55, have owned the property for at least 10 years, it must have been your primary residence at some point and you must make the contribution within 90 days of settlement.
What if I cannot contribute any more to superannuation?
In cases where you are unable to contribute further to superannuation, a family trust may be a good alternative for the taxation benefits it provides and to assist you in growing and managing wealth. Essentially, taxable earnings within the trust can be distributed to a number of beneficiaries within your family, in line with the provisions of the trust deed.
It may also be beneficial to establish a company as a beneficiary of the trust to take advantage of company tax rates at 30% compared with the highest marginal tax rate of 47%. Utilising this strategy should be carefully planned with an accountant, as when funds are withdrawn from the company, top-up tax will likely be payable by the individual depending on their tax rate at the time.
Investing within a trust may provide flexibility for taxation purposes as well as flexibility when considering wealth succession.
How can I manage succession of wealth to the next generation?
When retiring with a high net worth position, it’s likely you will have a sizeable estate.
It is therefore important to consider appropriate wealth succession with the correct estate planning documentation, superannuation beneficiary nominations and consideration of future trustees for various trusts.
Seeking legal and tax advice here is imperative to ensure your wealth is distributed in accordance with your wishes and in the most tax-effective way.
You should consider and navigate conversations with the next generation carefully. Help them understand how to manage wealth if you pass away. This education takes time, as responsibilities may eventually shift to them, so engaging in these discussions early can provide significant benefits.
If you have any questions about managing your wealth as you approach retirement, please contact a member of the William Buck Wealth Advisory team.
