Remix your income for 2026
The end of the year is a great time to review your retirement income mix.
By Mark Fenton-Jones – 5-min read
A little about Mark
Mark Fenton-Jones has spent his career helping Australians understand the world of money, drawing on his experience as Editor of the Sydney Morning Herald’s Money section, an Editor at the Australian Financial Review, and author of several finance books.
Every Friday afternoon, friends of mine, Doug and Lyn* sit down with a glass of wine and talk about money. It’s part budgeting session, part marker that the weekend has officially begun. Most weeks, the conversation is light. But as Doug recently confided to me, by November, when Christmas and family commitments start to loom, those chats get a little more serious.
Like many retirees, Doug and Lyn saw their income drop once they finished full-time work. Gone were the two reliable salaries that let them make spur-of-the-moment purchases without checking in with each other. Now in their early 70s, their income comes from a mix of the government Age Pension, the occasional casual work, and super that they have shifted from the accumulation phase (i.e. when you contribute to super) into a retirement income stream.
While Doug and Lyn rely on their super and the government Age Pension, some retirees have additional income options such as rental income, annuities, reverse mortgages and home equity access schemes.
At Doug and Lyn’s Friday “meetings”, the credit card is often the star of the show. They run most spending through it for the loyalty points, and then pay off the balance before interest kicks in. It’s their personal “line in the sand”. But recently, that balance has been taking longer to clear. So as the year draws to a close, they’ve decided to rethink their income mix.
Understand the income mix
Many retirees, like Doug and Lyn, juggle income from several sources. It helps to understand how each income source works before reshuffling the mix.
A core income source for many retirees is an account-based pension, created by converting super into a retirement income stream. This option provides a regular income (paid monthly, quarterly or annually); the flexibility to take lump sums; and tax-free earnings and withdrawals once you’re over age 60.
While that flexibility gives retirees the freedom to adjust as life changes, it also means you need to keep an eye on how long the balance will last.
For retirees who qualify, the government Age Pension is a steady foundation that helps cover everyday expenses. It’s indexed, paid for life (if eligibility is maintained), and adjusts with their circumstances. Because payments are income- and asset-tested, changes to your super or retirement account-based pension can affect what you receive. A quick review each year helps ensure you’re getting the right amount.
Make an action plan
The key is to ensure withdrawals fit into your long-term plan so they don’t erode your pension balance too quickly. A good starting place is to estimate your needs for the next one to three years.
Similar to other retirees, Doug and Lyn dip into their superannuation account to make withdrawals for maintenance around their home. Such occasional lump-sum withdrawals can also be used for new appliances or a car replacement, travel, medical or dental procedures or supporting children or grandchildren.
One simple planning exercise Doug and Lyn do each year involves breaking down expected expenses for the year ahead into several categories:
- Essential expenses – include utilities, rates, insurance and groceries
- Lifestyle spending – covers travel, eating out and hobbies
- Planned major one-off costs – such as renovation work, a new roof, medical procedures or replacing white goods.
This exercise can help decide whether their current superannuation pension payments are too high or too low. In going through this exercise you might discover you’ve been drawing more than you spend if you set the amount years ago.
Think balance
A sound rule for budgeting is to depend on predictable income first and draw on lump sums only when part of a planned strategy.
A major question many retirees would like to know – but as yet, there is no definitive answer – concerns the number of years a person has left on this planet. As Australians are living longer, retirees in their mid-70s may still have 10–20 more years of living costs ahead.
Against that background, it’s worth asking if you’re spending an amount that’s sustainable and allows you to enjoy life. Creating a realistic budget can help you understand how much you need – tools like the Moneysmart budget planner or Moneysmart retirement planner are a good starting point for going through this exercise.
It's worth noting that health and aged-care costs often increase in later years, although this may be offset by spending less on travel and leisure activities.
Most retirees I know prefer creating a steady, predictable income rather than relying excessively on emergency lump sums. It may be worthwhile increasing regular payments if your lump-sum withdrawals are becoming too frequent – or reducing them if you're consistently under spending.
It’s important to note that taking money out of your account-based pension can affect your Age Pension entitlements. For example, using the funds to improve your home, may lower your assessable assets and potentially increase your Age Pension entitlements. Conversely, if you withdraw money and leave it sitting in the bank, it remains assessable and may reduce your payment. This is one of the reasons many retirees do a year-end review of their cash flow, where timing and purpose matter.
For retirees like Doug and Lyn who rely on a mix of the Age Pension, an account-based pension, some casual work and potentially other assets, a review should look at:
- Cash flow needs
- Investment performance and asset mix
- Centrelink implications
- Planned major expenses
- If regular withdrawals still fit their lifestyle
- If other income options (like annuities or equity release) are worth considering.
A bit of planning, with professional advice where needed, can ensure your income streams work smoothly together, supporting the lifestyle you want today while giving you confidence your money will last for the years ahead.
* Names have been changed for privacy purposes.
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