Nearly half of Australians aged 50 to 66 — 48% — worry they will run out of money in retirement, according to ASIC’s Moneysmart research. Only 18% have a clear written plan. For someone aiming for a comfortable retirement, the ASFA Retirement Standard says a single person needs about $630,000 in lump sum savings and an annual budget of $54,840. The Age Pension alone pays a maximum of $31,223 per year for a single person — a gap of over $23,000. That gap is where a diversified portfolio beyond super comes in.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Around 2.5 million Australians are expected to retire over the next decade. Many will rely on the Age Pension as their main income source, yet the full pension for a single person covers only about 57% of what the ASFA standard calls a comfortable budget. That leaves a shortfall that super alone may not fill, especially with the $2.1 million Transfer Balance Cap limiting how much can sit in the tax-free pension phase. Building a portfolio that works across super, personal investments, and the Age Pension is not optional for most people — it is the difference between scraping by and living comfortably. Here is what you actually need to know.
What diversification means for your retirement income
Diversification in retirement is not just about owning different assets. It means spreading your money across different tax structures, access rules, and risk profiles so that no single change — a market drop, a rule change, or a health shock — derails your income. What I tend to notice is that most people focus on their super balance and stop there. They treat super as the whole answer, when it is really one piece of a bigger picture.
Inside super, earnings in the pension phase are tax-free and withdrawals are tax-free from age 60. Outside super, you pay marginal income tax on earnings and capital gains tax when you sell. The Age Pension is means-tested and tax-free. Each layer has different rules, and the art is arranging them so they work together rather than against each other. A retirement blueprint that coordinates these layers tends to produce more after-tax income than one that maxes out super alone.
Rates, thresholds, and what they actually cost
The numbers that govern your retirement change every year. The table below shows the key limits for 2026–27 and what they mean in practice.
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| Threshold | 2025–26 | 2026–27 | What it means for you |
|---|---|---|---|
| Concessional contributions cap | $30,000 | $32,500 | Includes employer SG, salary sacrifice, and personal deductible contributions. Exceed it and the excess is taxed at your marginal rate. |
| Non-concessional cap | $120,000 | $130,000 | After-tax money you put into super. Three-year bring-forward cap rises to $390,000. |
| Transfer Balance Cap | $2.0M | $2.1M | Maximum you can move into tax-free pension phase. Extra $100,000 can now earn tax-free for life. |
| Age Pension assets test (homeowner single) | $314,500 | $321,500 | Full pension threshold. Above this, the part-pension tapers down. |
| Age Pension income free area (single) | $5,676/yr | $5,876/yr | Earn less than this from other sources and it does not reduce your pension. |
The difference between the Age Pension full rate ($31,223 per year for a single person) and the comfortable retirement budget ($54,840) is $23,617. To generate that from super using a 4% withdrawal rate, you would need about $590,000 in super — on top of the $630,000 the ASFA standard already assumes. That is where outside-super investments become necessary for anyone who wants more than a basic retirement.
Errors and gaps that cost retirees real money
Retiring with everything inside super and nothing outside
Super is tax-efficient, but it is also locked away until preservation age and capped at $2.1 million in the pension phase. If your entire retirement savings sit inside super, you have no flexibility to access lump sums for unexpected costs — a new car, home modifications, or helping family. The research shows retirees commonly underestimate costs like car replacement and dental gaps. Keeping six to twelve months of cash in a high-interest account outside super gives you a buffer without triggering a super withdrawal.
Assuming the Age Pension will automatically cover you
Only about half of Age Pension claims are approved at the full rate. The assets test and income test both apply, and the thresholds are lower than most people think. A single homeowner with assets above $321,500 starts losing the pension. Many retirees assume they will get the full rate and plan their budget around it, only to discover they qualify for a part-pension worth half that. Checking your position using the Moneysmart retirement planner before you retire gives you time to adjust.
Being too conservative or too aggressive with your allocation
Retirees often swing to one extreme. Some put everything in cash because they fear a market drop, which means inflation erodes their purchasing power — $50,000 today needs about $90,000 in 25 years at 2.5% inflation. Others stay 100% in growth assets and have to sell during a downturn. The research suggests a sliding scale: 40–60% growth in early retirement, dropping to 20–40% in later retirement. That balance lets growth assets outpace inflation while defensive assets cover near-term spending.
Ignoring how super withdrawals affect your Age Pension
Drawing a lump sum from super increases your assessable assets, which can reduce or cancel your Age Pension. The same withdrawal also generates deemed income under the income test. A couple with $600,000 in super who withdraws $50,000 for a renovation may lose thousands per year in pension payments. Timing withdrawals to land in a low-deeming-rate year or spreading them across financial years can preserve more pension. This is where a super fee review before making withdrawals also helps — high fees inside super eat into the balance you are drawing from.
Building a retirement portfolio that works across all three layers
The three-bucket approach to retirement income
Rather than treating your savings as one lump sum, split them into three buckets based on when you will need the money. Bucket one holds one to three years of spending in cash or high-interest savings — this covers your regular bills and means you never have to sell investments during a market drop. Bucket two holds three to seven years of spending in bonds or defensive assets like the Vanguard Australian Fixed Interest Index ETF (VAF). Bucket three holds everything else in growth assets — Australian and international shares — that will fund your later years. The research suggests 40–60% in growth during early retirement, dropping to 20–40% as you age. This structure means you only touch the growth bucket after the defensive buckets have been drawn down, giving your shares time to recover from any downturn.
Using ETFs to diversify outside super
Outside super, exchange-traded funds give you broad market exposure without the concentration risk of owning a handful of individual stocks. A simple portfolio might hold 35% in a developed markets ETF like Vanguard MSCI Index International Shares ETF (VGS), 25% in a Nasdaq-100 ETF for tech exposure, 20% in an Australian shares ETF like A200, and 10% each in a quality-focused global ETF and an emerging markets ETF. The key difference from super is that you can access this money at any age, and you control the timing of sales for tax purposes. Dividends from Australian shares also come with franking credits, which can generate cash refunds if your marginal tax rate is low.
Coordinating super withdrawals with Age Pension eligibility
The order in which you draw down your savings directly affects how much Age Pension you receive. Super in the pension phase is counted under the assets test but the deemed income is often lower than actual earnings. Drawing a large lump sum from super increases your assessable assets in the same financial year, which can reduce your pension. A better approach is to draw only the minimum required from your account-based pension — 4% if you are under 65, 5% if you are 65–74 — and cover extra spending from cash or investments outside super. This keeps your assessable assets lower and preserves more Age Pension. For couples, splitting withdrawals across both partners can also keep each person below the income free area of $5,876 per year.
What the 2026–27 rule changes mean for your strategy
Several changes from 1 July 2026 affect how you build your retirement portfolio. The Transfer Balance Cap rises to $2.1 million, meaning you can move more into the tax-free pension phase. The Division 296 tax applies a 15% additional tax on super earnings above $3 million, which mainly affects high-balance members. Payday Super means your employer must pay contributions within seven days of each payday, giving your money more time to compound. The CGT discount for individuals drops from 50% to indexation with a minimum 30% tax rate from 1 July 2027, but super funds retain their one-third discount. If you are considering selling an investment property before retirement, the window to lock in the 50% discount closes on 30 June 2027. Getting a market valuation as at 1 July 2027 will help you separate pre-reform gains from post-reform gains. For specific questions about how these changes affect your situation, finance professionals on JustAnswer can provide tailored guidance.
Frequently asked questions
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The retirement landscape is shifting — plan for it now
The 2026–27 changes to super caps, the Transfer Balance Cap, and the new Division 296 tax mean that relying on super alone is riskier than it used to be. The system is becoming more targeted: higher balances face more tax, while lower balances get more support through the Age Pension and co-contributions. Building a portfolio that spreads across super, personal investments, and the Age Pension gives you flexibility that a single structure cannot match. The people who will retire most comfortably are not the ones with the biggest super balance — they are the ones who understand how all three layers work together and plan accordingly.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read The Psychology of Spending: Controlling Impulses and Building Better Habits.
Sources and Further Reading
Financial Freedom Down Under: The Aussie Blueprint for Early Retirement — A practical guide to building wealth outside super for those targeting early retirement.
Is Your Superannuation Ripping You Off? The Hidden Fees You Need to Know — How to check what your super fund is charging and whether it is costing you thousands.
Wealthworks (2026). Retirement planning gap Australia 2026: ASIC Moneysmart super & Age Pension guide. 🔗
Peakifi (2026). Investing in retirement Australia. 🔗
MyMoney (2026). Retirement income strategy: financial planner Australia 2026. 🔗
RetireConfident (2026). Super & retirement changes 2026–27. 🔗
