A regular income stream in retirement
Retirement income can feel uncertain. An annuity can help by turning a lump sum into regular payments, giving you more confidence about your income throughout retirement. Speak with a financial adviser to explore whether an annuity fits your retirement plan.
Making your retirement savings last
For many Australians, the biggest challenge in retirement isn't how much they've saved, it's making that money last. With Australians living longer, retirement can last 20 to 30 years or more. While an account-based pension can provide flexible income throughout retirement, your balance reduces over time and may be affected by market movements and the amount you withdraw.
If you're looking for more certainty about your retirement income, an annuity may be worth considering. It can form part of a broader retirement income strategy alongside an account-based pension and the Age Pension. It's important to understand the trade-offs, including limits on access to your money.
What is an annuity and how does it work?
Planning for retirement can feel complex, especially when you're thinking about how to create a reliable income. An annuity lets you invest a lump sum, often from your super, and receive regular income payments in return. You'll know the payment amount from the start, and payments can be made monthly, quarterly or annually.
Unlike an account-based pension, a lifetime annuity provides a regular income regardless of how investment markets perform. Knowing how much income you'll receive can make it easier to plan your spending and feel more confident about your finances in retirement.
In Australia, annuities are regulated products offered by life insurance companies. The payments you receive depend on the product and options you choose. They can complement other sources of retirement income, such as an account-based pension or the Age Pension, helping create a more balanced retirement income strategy. Because everyone's needs and circumstances are different, it's important to seek financial advice to understand whether an annuity is right for you.
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Three steps from lump sum to regular income
Choose the annuity that's right for you
A lifetime annuity can provide income for life, while a term annuity provides income for a set period. Think about how an annuity could work alongside your other retirement income sources, such as the Age Pension and/or an account-based pension, to help support the lifestyle you want in retirement.
Invest your lump sum
Use a lump sum from your super, savings or an existing pension to purchase your annuity. The amount you invest, together with features such as your chosen term, indexation option and current interest rates, will influence how much regular income you receive.
Receive a regular income
Once your annuity is set up, you'll receive regular income payments at the frequency you choose. Depending on the product, payments may increase over time to help keep pace with inflation or remain fixed. Your financial adviser can help you integrate your annuity with your broader retirement income plan.
Annuities features at a glance
What annuities offer retirement-focused members
Regular income payments
Fixed or indexed payments at agreed intervals
Predictable cash flow to help cover living expenses
Lifetime income option
Payments continue for as long as you live
Helps address the risk of outliving your savings
Term income option
Payments over a nominated fixed period
Flexibility to align income with specific retirement stages
Inflation indexation (optional)
Payments increase in line with CPI or a fixed rate
Helps maintain purchasing power over time
Reversionary / death benefit
Payments continue to a nominated spouse, or an estate benefit applies on death
Supports income continuity and estate planning
Centrelink assessment treatment
Complying lifetime annuities may be assessed differently under the Age Pension assets test
May affect Age Pension entitlements — seek advice as individual outcomes vary
Is a lifetime income product right for you?
If you're looking for more certainty in retirement, a lifetime income product could help provide a reliable income for life, subject to the terms you choose. A lifetime income product may be worth considering if you:
- Want an income that continues for life, no matter how long you live
- Would prefer part of your retirement income to be a set, agreed amount
- Would feel more confident knowing part of your retirement income is secure
- Are concerned about market movements affecting your retirement savings
- Want to complement other sources of retirement income, such as an account-based pension or the Age Pension
Approaching retirement and looking for more certainty?
If you're preparing for the next stage of life, a term annuity can help provide a regular income while you transition from work into retirement. It can bridge the gap between finishing work and becoming eligible for the Age Pension, giving you greater confidence and more certainty about your income along the way.
Want greater certainty about your retirement income?
If you're already drawing an income from your super, a lifetime annuity can pay an agreed income for life that isn't linked to market movements. Combined with an account-based pension or the Age Pension, it can help create a more balanced retirement income strategy. As Australians spend longer in retirement, many are looking at ways to make their savings last.
Lifetime income products are becoming an increasingly popular way to complement an account-based pension and add greater certainty to retirement planning. A financial adviser can help you understand how a lifetime annuity might fit alongside your existing arrangements.
Things to keep in mind
Like any retirement option, a lifetime income product won't suit everyone. Before deciding, it's important to understand that:
- Some products may limit how much of your money you can access or when you can access it
- Returns may be lower than investments focused on long-term growth
- Features, benefits and flexibility can vary between products
A financial adviser can help you understand whether a lifetime income product is right for your circumstances and retirement goals.
How long will your retirement income last?
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Frequently asked questions
If you're looking for more certainty in retirement, an annuity may be worth considering. It allows you to invest a lump sum and receive regular income payments in return. Depending on the type of annuity you choose, those payments can continue for a set period or for the rest of your life. Many Australians use annuities alongside their super to help create a more predictable retirement income.
A lifetime annuity pays you a regular income for the rest of your life, helping provide confidence that you'll continue to receive income no matter how long you live. A term annuity pays income for a period you choose, such as five, 10 or 15 years. The right option depends on your goals, income needs and broader retirement plans. As social security treatment can differ between products, it's important to speak with a financial adviser before making a decision.
Tax treatment can vary depending on your age, the type of annuity you hold and whether it's purchased through superannuation or non-super savings. If you're aged 60 or over and receiving income from a superannuation-funded annuity in retirement, that income is generally tax-free. Different rules may apply if you're under 60. Because tax outcomes can vary, we recommend checking the latest information by speaking with a financial adviser.
This will depend on the product you choose and the options you select when you start your annuity. Some annuities allow you to nominate a beneficiary, such as your spouse or partner, to continue receiving payments. Others may include a death benefit or guaranteed payment period. Make sure you read the relevant PDS to understand how your chosen product works.
Everyone's retirement journey is different. An annuity may be worth considering if you want more certainty around your future income, are concerned about making your savings last, or want a dependable source of income alongside other investments. Annuities won't suit everyone, so it's important to consider your personal circumstances.
The cost of an annuity is based on the amount invested, your selected term and features, and interest rates when you purchase the annuity.
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Disclaimer
Avanteos Investments Limited ABN 20 096 259 979, AFSL 245531 (AIL) is the trustee of the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557 and issuer of FirstChoice range of super and pension products. Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (CFSIL) is the responsible entity and issuer of products made available under FirstChoice Investments and FirstChoice Wholesale Investments.
Information on this webpage is provided by AIL and CFSIL. It may include general advice but does not consider your individual objectives, financial situation, needs or tax circumstances. You can find the target market determinations (TMD) for our financial products at https://www.cfs.com.au/tmd which include a description of who a financial product might suit. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. You can get the PDS and FSG at www.cfs.com.au or by calling us on 13 13 36.