Where to find retirement income in addition to super

The national conversation about retirement and retirement income tends to revolve around super. How much you’ve got and will it be enough.

Yet people retiring today have only had super contributions of 9% or higher for part of their working lives, leaving many with a gap between means and expectations. Or does it?

Today’s retirees are healthier and wealthier on average than previous generations, with overseas travel, touring Australia and an active social life all high on the wish list. As retiree lifestyles are changing, so too is the way retirement is funded.

Australia’s retirement income system is built around three pillars – superannuation, the Age Pension, and voluntary savings inside and outside super. But that ignores other potential sources of income.  

So, if you’re wondering how to fund your dream retirement, let’s count the ways.

1. Superannuation

For most Australians, super is fast becoming the biggest financial asset outside the family home and a major source of retirement income. At the very least, it will augment any Age Pension you might receive and help pay for a more comfortable lifestyle.

According to the latest figures from the Australian Bureau of Statistics (ABS), in June 2022 median balances were around $206,000 for men aged 65–69 and $191,000 for women the same age.

Median balances (where 50% of people have more and 50% have less) tend to be more realistic than averages which can be distorted by individuals with very large balances. The average balance for men aged 65–69 was $428,533 in 2022, and $379,483 for women.

A nest egg this size is far bigger than previous generations enjoyed, but it won’t be enough on its own to fund 20 years or more of retirement. Most retirees still depend to some extent on the Age Pension.

The good news is that a decade from now, the median balance for retirees who have had 9% super contributions their entire working lives should exceed $500,000. That will help close the retirement income gap but won’t close it entirely.

Explore our articles on how much super you need to retire and how to work out your retirement income needs.

2. The Age Pension

Despite the focus on super, some argue that the Age Pension is still the central pillar of our retirement income system. For those eligible for a full Age Pension, this is likely to cover essential retirement spending, while any income from super will helps pay for additional comforts.

Close to 58% of Australians over the age of 65 receive a full or part-Age Pension, according to research by the Australian Institute of Health and Welfare (AIHW). The percentage increases to 69% for people over 70, reflecting the gradual rise in the Age Pension eligibility age from 65 to 67.

In fact, Australian Bureau of Statistics (ABS) figures for 2022–23 show some form of government pension was still the main source of income for 43% of retirees (46.6% of men and 40.5% of women).

By comparison, super was the main source of income for 27% of retirees (33% of men and 21% of women). Women’s lower super balances at retirement are reflected in the 31% of women who relied on their partner as their main source of retirement income, although this dropped from 44% a decade earlier.

3. Investments held outside super

An often-overlooked source of retirement income is from investments held outside super. This can be a major source of income for discretionary spending in retirement, especially for wealthier retirees who exceed their transfer balance cap (the amount of super that can be transferred into retirement phase).

In fact, most (51%) adult Australians hold investments outside super and the family home, according to the 2024 Finder survey of Australian investing statistics.

Cash in the bank (32%), term deposits (13%) still represent the biggest store of wealth outside super, followed by shares (12%), investment property (8%), ETFs (8%) and managed/index funds (6%).

Younger investors locked out of the property market are turning to listed investments such as ETFs (exchange-traded funds) which are low cost and easy to access on digital platforms, and they are doing so outside super because retirement is still a long way off. In fact, Finder found Millenials were the age group most likely to hold investments outside super (61%), ahead of Baby Boomers (49%), Gen X (40%) and Gen Z (55%). While these investments are not necessarily earmarked for retirement, they could provide the basis of a long-term investment portfolio

Older investors are more likely to hold residential investment property which can only be held inside super if you have a self-managed super fund. As property is a long-term investment, it’s reasonable to assume many of these investors plan to use rental income to help fund their retirement.

If you plan to retire early, or you are forced out of the workforce due to illness or redundancy, you may need to rely on investment income from sources other than super. That’s because you can’t access your super until you turn 60, except on strict compassionate or hardship grounds.

4. Future inheritances

A mind-blowing $3.5 trillion in personal wealth is set to transfer from the older generation of Australians to their children and grandchildren over the next 20 years. That’s a lot of gravy heading down the tracks.

The average inheritance in Australia is currently about $125,000, according to the Productivity Commission, with the average recipient around 50 years old. And of course, many people stand to receive more than that, especially if they inherit the family home or receive more than one inheritance.

Now that it’s possible to continue contributing to super until you turn 75, within your annual contribution caps, an inheritance can provide a welcome last-minute boost to your retirement savings. If you have already retired and moved your super into a retirement phase pension, you will need to put the proceeds of your inheritance into a new or existing accumulation account.

The difficulty in planning for an inheritance is not knowing when you will receive it. This is especially the case if you retire before it comes through and/or there’s some uncertainty about the amount you can expect to inherit.

Given the potentially large sums involved and planning issues, it is a good idea to seek independent financial advice for help in working out how to make the most of your inheritance.

5. Part-time or occasional work

Retirement is no longer viewed as an all or nothing decision. Whether out of necessity or because it fulfills a sense of purpose, many of today’s retirees want to continue doing some form of paid work.

This might be consulting or part-time work in your field of expertise, a side gig doing something completely different, or occasional work as an election scrutineer or exam supervisor. Whatever you choose to do, it can provide additional income for discretionary spending.

Age pensioners often worry they will lose some of their pension if they do paid work, but eligible pensioners can earn up to $11,800 per year without losing any pension using the work bonus scheme.

6. The family home

For many retirees, their greatest store of wealth is under their feet. And no, it’s not buried in the backyard.

Australian retirees are among the wealthiest in the world with median household wealth of around $1.4 million, but close to $1 million of that is tied up in the family home. While home ownership rates are falling, and increasing numbers of retirees rent or still have a mortgage, around 75% of retirees own their own home.

Given that today’s retirees often rely on the Age Pension, and many have relatively modest savings in super, more attention is being given to unlocking wealth stored in the family home. The three main options are:

• A reverse mortgage (sometimes called equity release), which provides regular income or a lump sum in return for giving up a portion of the value of your home when you sell or die
• The government’s Home Equity Access Scheme (HEAS), a type of reverse mortgage operated by Centrelink
• Downsizer contributions, allowing eligible individuals to contribute up to $300,000 into their super account (up to $600,000 for couples) from the proceeds of selling their home, perhaps to buy something smaller and more manageable.

The bottom line

There’s more than one way to skin a cat and more than one way to fund your retirement. So when you start planning your retirement income, don’t stop at your super retirement balance. Also include any Age Pension you may be entitled to receive, if not immediately then later in life, as well as income from investments outside super, ongoing work, your home and inheritances.