The Order to Draw Super, Savings and the Age Pension
The tax answer and the means-test answer point in different directions. Earnings inside an account-based pension are untaxed and earnings outside it are not, which argues for spending outside money first. Both are assessed for the Age Pension, which means spending either reduces assessable assets equally — so the tax argument wins by default, with two exceptions that matter.
- The answer: Draw the minimum from the pension account, spend non-super money for the rest, and preserve the retirement-phase balance for as long as the minimum allows.
- The trap: The minimum drawdown forces money out anyway, and rises with age. The strategy is bounded by a schedule you do not control.
- The recommendation: Spend cash and low-yield assets first, keep franked Australian shares outside super where the credits are refundable, and let the pension account compound.
Where the AI summary above gets this wrong
"You should spend your superannuation last because it is tax-free."
That's surface-true. Here's what it misses:
- The pension account is not optional to draw from — A minimum percentage must be withdrawn each year and it rises with age, so 'spend it last' is only available for the amount above the minimum.
- Franking credits are worth more outside super for a low-income retiree — Excess credits are refundable against a personal return with little other income, which can make holding Australian shares outside super better than the untaxed environment inside it.
- Both accounts are assessed the same way for the Age Pension — Neither spending order improves the means test, so the means-test consideration drops out and the tax consideration decides.
Take a household with $500,000 in an account-based pension, $150,000 in a bank account and a part Age Pension — a composite of a very ordinary shape. Every dollar of spending has to come from one of those, and the order changes the total by tens of thousands over a decade.
01 Why the tax argument favours spending outside first
Money in an account-based pension in retirement phase earns returns that are taxed at nil. The same money in your own name is taxed at your marginal rate on income and, after the discount, on realised gains.
Spending the taxed money first therefore shrinks the taxed environment and leaves the untaxed one compounding. Over a decade the difference is meaningful and it is entirely a consequence of which account the balance sat in.
For a retiree with little other income the marginal rate on the first band of outside earnings is low or nil, which narrows the gap without closing it. The gap widens with the size of the outside portfolio, because the tax-free threshold is a fixed amount rather than a proportion.
The worked example puts a number on it for a balance and a period you supply, in the same form as the comparison in the drawdown post.
Shows: what preserving the untaxed pension balance is worth against spending it first, by comparing the same total spending funded in each order over a period. Ignores: the minimum drawdown, the Age Pension, franking credits, capital gains tax on assets sold outside super, and inflation.
02 Why the means test does not decide it
Under the Age Pension assets test, an account-based pension balance and a bank balance are both assessable at full value. Under the income test, both are deemed. Moving money between them, or spending one before the other, changes neither test.
That is genuinely counterintuitive and it is the single most useful thing to know here, because a great deal of effort goes into arranging drawdown order for means-test reasons that do not exist.
What does change the means test is spending itself, and where the spending goes. Money spent on the principal home leaves the assets test permanently, as set out in the home exemption reference, and that is available regardless of which account funded it.
The one real means-test asymmetry is a younger partner's accumulation account, which is not assessed until they reach Age Pension age. Where that exists, it should be drawn from last regardless of anything else.
03 The two exceptions
Franked Australian shares are the first. Excess franking credits are refundable against a personal tax return, so a retiree with little assessable income can receive the full credit as cash. Inside a pension account the credits are also refundable to the fund, so the advantage is narrower than it looks but the outside holding is not disadvantaged.
The second is a large unrealised capital gain outside super. Selling it to fund spending triggers tax now; holding it until death passes the cost base to the beneficiary rather than triggering a gain, which is a genuine reason to spend other money first.
Both exceptions are about which assets to sell rather than which account to spend from. The ordering question is really two questions, and separating them is what makes it tractable.
Neither exception survives if it means holding cash you need. Selling a franked share portfolio in a bad year to avoid touching super is a worse outcome than either ordering, and it is what happens when a rule is followed past its purpose.
04 The bridge years before Age Pension age
Retiring before 67 means the portfolio funds everything until the Age Pension starts. That period has the highest withdrawal rate of the whole retirement, and it is where sequence risk does the most damage.
Drawing more heavily from outside super during the bridge, and leaving the pension account intact, is the same principle applied to the hardest years. It also has a means-test benefit that does not exist later: super in accumulation belonging to someone below Age Pension age is not assessed at all.
Where both partners are below Age Pension age, that exemption covers the whole household balance, which is why the assets test frequently does not bind until the older partner turns 67 — a step change worth modelling before it arrives.
The trade-off is that spending the outside money during the bridge leaves less flexibility afterwards. Keeping a cash buffer outside super through the transition is worth more than the tax it costs.
05 What I would actually do
Draw the minimum from the pension account, because you have to. Fund the rest from cash and low-yield assets outside super until they are gone, then from the pension account above the minimum.
Hold the franked Australian shares outside super and the income-producing assets inside it, which is the asset-location question rather than the drawdown question and is worked through in the super versus taxable post.
Keep two years of planned spending in cash outside super at all times. It costs a little tax and it removes the requirement to sell anything in a year the market has fallen, which is the behaviour that actually protects the balance.
And revisit after each Age Pension reassessment. The order that was right at 67 is not automatically right at 75, because the minimum drawdown has risen and the outside money has usually gone.
Most of the effort I see spent on drawdown order is spent for means-test reasons that do not exist — a pension balance and a bank balance are assessed identically. Once you know that, the question shrinks to a tax question with a clear answer, and the energy is better spent on which assets you hold where.
FAQ
In what order should I draw down my super, my savings, and the Age Pension in retirement?
Take the minimum from the pension account because you must, fund the rest from money outside super until it is gone, and only then draw above the minimum. The untaxed retirement-phase environment is the thing worth preserving.
Should I spend my super before my non-super savings?
Generally not. Earnings inside an account-based pension are untaxed and earnings outside are not, so spending the taxed money first shrinks the taxed environment and leaves the untaxed one compounding.
Does the drawdown order change my Age Pension?
No. Both an account-based pension balance and a bank balance are assessable at full value and both are deemed, so the order changes neither test. Spending money on your principal home does change it.
What should I do differently before Age Pension age?
Draw more heavily from outside super during the bridge years. Super in accumulation belonging to someone below Age Pension age is not assessed at all, so the household's assets test position is better while that lasts.
Sources
Regulator references
- ASIC Moneysmart — Account-based pensions · ASIC Moneysmart · 2026Account-based pensions: how they are started, drawn and taxed.Last verified: 2026-09-07
- ASIC Moneysmart — Retirement income · ASIC Moneysmart · 2026The sources of retirement income in Australia and how they combine.Last verified: 2026-09-07
- Services Australia — Assets test for Age Pension · Services Australia · 2026The assets test: which assets count, the thresholds, and the taper that reduces the payment.Last verified: 2026-09-07
- ATO — Franking credits on your dividends · Australian Taxation Office · 2026Franking credits: how the imputation credit is grossed up and offset against tax.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.