Take the stress out of retirement with income layering
Written and accurate as at: Jun 13, 2025 Current Stats & Facts
Retirement is a time to say goodbye to work and all the stresses that come with it, but sometimes those stresses are replaced with new ones. For many newly retired Australians, worries about withdrawal rates and how long their savings will last now take centre stage.
The good news is that thinking about your income as layers of a cake, each with a unique way of supporting the different needs you have in retirement, can help put those fears to bed.
Layer one: the Age Pension
Think of the Age Pension as your foundational layer, which will help you cover the basics in retirement.
So long as you regularly meet the income and assets tests, Age Pension payments are lifelong and adjusted twice yearly to account for inflation. While it might be inadequate by itself, the certainty it provides makes it the perfect base when income layering.
There might also be benefits beyond the money you get, such as discounts on medicine via the Pharmaceutical Benefits Scheme and cheaper rates on electricity and gas bills.
Just remember to apply as soon as you’re eligible so you’re not left out of pocket as things are being processed. While wait times have improved somewhat in recent years, you can help speed things along by making sure the information you provide is accurate and up-to-date.
Layer two: your super
Next is the money paid to you from your super or a lifetime income stream (which is typically purchased using your super or other savings). This can be used to top up the Government support you receive so you have additional income to meet your lifestyle needs.
When it comes to tax, super is generally tax-free once you turn 60 and retire, regardless of whether you receive it as a lump sum or an income stream.
The same generally goes for lifetime income streams, so long as they are purchased using your superannuation money and you meet the age requirements. You might also find you’re eligible for higher Age Pension payments, as only part of a lifetime income stream counts towards Centrelink's income and assets tests.
Layer three: other sources of income
Think of this layer as the icing on top of your multi-layered cake – it may not be essential but it’s definitely appreciated. It might include things like:
- Interest from personal savings
- Earnings from shares (including dividends)
- Rental income
- Income from part-time work
While less predictable, the money from these sources can give you freedom to enjoy life a little more, whether that’s through travel, getting around to those home renovations, or covering any emergency expenses that pop up.
Just don’t forget that tax still applies on this income. Depending on your situation, however, there might be ways to reduce it, such as offsetting your capital gains with any capital losses, and using the 50% discount when selling shares that you’ve held for 12 months or more.
Creating your layers
Watching your super balance fluctuate can be stressful. After all, it’s when your super is no longer being topped up that you’re most vulnerable to market downturns. But focusing on income streams rather than overall balances can ease some of that stress and give you the confidence to enjoy your retirement a little bit more.
Just remember that your income layering strategy may look different from other retirees. So for advice tailored to your own circumstances and plans for retirement, consider speaking to a qualified financial adviser.