Yes, you can generally take your tax-free lump sum and still pay into your pension, but doing so may reduce your future annual allowance for contributions.
Can I take some or all of my 25% tax-free lump sum up front and leave the rest invested? If you want to take a tax-free sum but leave the remainder of your pension pot invested, you can do this through flexi-access drawdown. You can usually take up to 25% as a tax-free lump sum either in small chunks or one go.
Getting the Age Pension
What you do with your lump sum after you withdraw it from super may affect your eligibility for the Age Pension. To find out how a lump sum could affect your entitlements, talk to a Services Australia Financial Information Service (FIS) officer.
You can have a significant amount in the bank and still get a full Australian Age Pension, as it depends on your total assessable assets (not just cash), living situation (homeowner/non-homeowner) and relationship status, with homeowner singles getting a full pension under the assets test with assets below approximately $321,500, while couples need under $481,500 (as of late 2025 figures), with higher limits for non-homeowners before payments reduce or stop. The pension reduces as assets increase past these thresholds, with higher cut-offs for receiving any part pension.
Generally speaking, take the lump is a better idea. You earn more in the short term, pensions are typically not inflation indexed, you control it, and you can pass it along to your heirs.
When you choose to take your tax-free lump sum up front either in chunks or in one go (also known as flexi-access drawdown), you can continue to pay into your pension pot just as you do now.
Think about how long you might live, your financial goals, and how inflation could affect your money. Talking to a financial advisor can help make this decision easier. Taxes are different for lump sums and monthly payments. Lump sums could mean higher taxes at once, while monthly payments spread out the tax burden.
You'll pay Income Tax if you go above the limit
more than 25% of each pension as a lump sum.
You can have a significant amount of super and still get a part Age Pension in Australia, with the cut-off for homeowners being around $714,500 (single) or $1,074,000 (couple), and for non-homeowners, roughly $972,500 (single) or $1,332,000 (couple) as of late 2025. These figures are part of the Assets Test, where higher assets reduce your pension amount, with payments stopping entirely once you exceed these limits.
To retire on $70,000 a year in Australia, you'll generally need a superannuation balance in the range of $1.1 million to $1.7 million, depending heavily on your age at retirement (older is better), lifestyle, and whether you own your home, with estimates often falling around $1.1 million for a later retirement (age 67) or over $1.4 million if retiring earlier (age 60) for a single person, says Canstar and Association of Superannuation Funds of Australia (ASFA). A simple calculation suggests needing $70,000 divided by a 4% withdrawal rate equals $1.75 million, but other factors like the Age Pension and investment returns significantly affect the total required.
Fewer people have $1 million in retirement savings than commonly thought, with around 4.6% to 4.7% of U.S. households having $1 million or more in retirement accounts, according to recent Federal Reserve data (2022), though this percentage rises for older age groups, with about 9% of those aged 55-64 reaching that milestone. However, the median retirement savings are much lower (around $88,000-$200,000), showing a large gap between averages and reality, with many retirees having significantly less, notes.
The 3-year bring-forward rule allows Members in an SMSF to contribute more than the Non-Concessional Contribution (after-tax Contributions) cap of $120,000 during a 3-year financial period from 1 July 2024. From 1 July 2021 to 30 June 2024, the non-concessional contributions cap was $110,000.
If you are in excellent health and your family has a history of longevity, you may consider taking the pension option to have consistent retirement income. If you have substantial resources, a lump sum may allow for longer-term growth and greater estate flexibility.
If you opt for the lump sum, you or an eligible tax-qualified plan (such as an IRA) will most likely receive a check or IRA rollover from the company's pension fund for that amount. The company's pension (or defined benefit) obligation to you will end.
Rachel Reeves will not reduce the tax-free pension lump sum allowance in this month's Budget, officials have confirmed. The Treasury has ruled out any changes to the amount individuals can withdraw from their pension without paying income tax, following reports of a wave of withdrawals from pension funds.
The new 2025 regulations have reduced the mandatory annuity requirement from 40% to 20% for eligible non‑government subscribers. The Over ₹12 Lakh Threshold: If your accumulated pension wealth exceeds ₹12 lakh, you can now withdraw up to 80% as a lump sum. You only need to use the remaining 20% to purchase an annuity.
While exact real-time figures vary, estimates from around 2025 suggest approximately 400,000 to over 500,000 Australians held over $1 million in superannuation, with about 2.5% of the population reaching this milestone as of mid-2021, a figure that has likely grown with strong investment returns, though many more hold significant balances and millions are projected to reach this goal by retirement, especially men.
Yes, you can likely retire at 70 with $800,000, but it depends heavily on your annual spending, investment returns, and eligibility for government support like the Age Pension, potentially supporting a modest to comfortable lifestyle, though a very high-spending one might require more capital, according to wealthlab.com.au, Toro Wealth and Frontier Financial Group. Using the "4% Rule", $800,000 could provide around $32,000/year initially, but factoring in the Age Pension and lower expenses (like no mortgage/work costs) can make it stretch further, possibly supporting a single person's $44k-$50k/year needs.
First, the longer you leave your pension savings invested, the more opportunity they have to grow. So taking all of your tax-free lump sum at once could mean you get less in your pocket over the long term than you would if you took it in smaller chunks.
If you have a 'capped drawdown' fund and want to keep it, your money will stay invested. You can keep withdrawing and paying in. Your pension provider sets a maximum amount you can take out every year.
Making the Most of Your Lump Sum Payment
The biggest retirement mistake is often failing to plan adequately, which includes underestimating expenses (especially healthcare), ignoring inflation's impact on purchasing power, not starting savings early enough to benefit from compound interest, and leaving retirement savings in the wrong place (like not converting super to a tax-free pension), leading to running out of money or living a constrained lifestyle. A lack of a clear budget, not understanding investment options, and neglecting lifestyle/purpose planning also rank high.
This option usually means you'll lose a large chunk of your pension to Income Tax, which could affect how much you have to retire on. If you save or invest your lump sum, you might have to pay more tax on the interest or investment growth than you would leaving it in the pension – growth within a pension is tax-free.