Move your super into an account-based pension, which is tax-free after 60. Pay yourself a set amount every month from your cash buffer, and send ETF distributions and franking refunds into the buffer instead of reinvesting them. Then once a year, after a good year only, sell a little of whatever has grown most to top the buffer back up. You never have to sell shares on a schedule, or after a fall.
Building a retirement portfolio is one thing. Turning it into a reliable pay cheque is another. Here’s the routine we use with ETFs, step by step, with the parts of my videos where I explain it.
1. Set up an account-based pension
When you retire, you can move your super from the accumulation phase into an account-based pension, either in your super fund or your SMSF. Your ETFs stay invested; the difference is how they’re taxed and how you’re paid.
- Tax-free. Investment earnings in pension phase are tax-free, and pension payments are tax-free from age 60.
- A cap on how much. Each person can move up to $2.1 million into retirement phase (the transfer balance cap from 1 July 2026). Anything above that stays in accumulation, taxed at up to 15%.
- A minimum each year. You must take at least a set percentage of your balance each financial year. There’s no maximum.
For the $1 million couple, the minimum at 65 is $50,000 a year, well below the $78,998 they want to spend. Most retirees take more than the minimum; the rule matters later, when the percentage rises.
🎥 Watch me explain this
▶8:26The three-part SMSF portfolioThe retirement red zone: super, SMSFs and your last 5 years · from 8:26 · read the post
▶2:29Spend your capital or preserve it?How much do you need to retire in Australia? · from 2:29 · read the post
2. Send distributions to cash, not back into ETFs
ETFs pay out the dividends and interest they collect as distributions, usually every quarter or half-year. In retirement, turn off distribution reinvestment and have them paid into your cash buffer instead. They refill the buffer automatically, so you sell less.
- A diversified portfolio often pays around 2% to 4% a year, but it varies a lot from year to year. Don’t build your plan on it.
- In pension phase, franking credits are refunded in full, adding to your income. Australian share ETFs pay the most franking. See franking credits and ETFs.
- Judge an ETF on total return (growth plus distributions), not yield alone. A high-yield ETF that grows slowly can leave you with less.
🎥 Watch me explain this
▶52:03How ETF distributions are paidUnder the hood of an ETF with David Tuckwell · from 52:03 · read the post
▶22:09Yield, franking and total returnGlobal X Interview: Income, Gold, Covered Calls & GARP | Marc Jocum · from 22:09 · read the post
▶7:30Lesson 6: total return before dividends7 ETF investing lessons from 20 years · from 7:30 · read the post
▶1:59:00“I’m going all in on VHY for my Australian exposure”Live ETF Q&A: Tech breaks down as the Aussie market finds its feet · from 1:59:00 · see the Q&A notes
3. Pay yourself monthly from the buffer
Set your pension as a regular payment, like a salary. It always comes from the cash buffer, never from selling shares on the day.
At 67, once a part Age Pension starts (about $13,082 a year for this couple), the amount the portfolio needs to pay drops, and so does the buffer you need. The Age Pension is paid separately by Centrelink every fortnight.
4. Refill once a year: what to sell first
Once a year, look at the buffer. If markets had a good year, top it back up to its target. If they had a bad year, leave it. When you do refill, sell in this order:
- Cash from satellites that have already been sold because their uptrend ended.
- Whatever has grown most above its target: trimming winners also rebalances the portfolio.
- The core, for the rest.
That way you’re selling what’s up, not what’s down. Try it with your own numbers:
🧮Visualise your retirement portfolioEnter your super and the income you need: see your cash buffer, core and satellites, and whether your money lasts.
See how a cash buffer pays your pension, and whether your money lasts, in good years and bad.
Illustration only, general information. Assumes cash earns 4%, the core 7% and satellites 8% a year after fees in normal years, and income rises with inflation at 2.5% a year. “A crash in year 1” assumes the core falls 25% and satellites 35%, then recover over two years; “Two bad years” assumes two falls in a row. Each year your income is paid from the cash buffer; after a good year the buffer is topped back up from your investments, after a bad year it isn’t, so you never sell shares after a fall unless the buffer runs out. Ignores tax and super pension minimums. Age Pension is estimated each year from your balance under the assets and income tests (homeowner rates from 20 September 2026, $50,000 of other assets, limits rising 2.5% a year); your actual entitlement depends on Centrelink. Real returns will be different.
🎥 Watch me explain this
▶7:33The 3-year cash bufferHow to build a retirement portfolio with ETFs (Australia) · from 7:33 · read the post
▶27:45What’s the trigger for reinvesting the satellite cash?Live ETF Q&A: Money hides in banks and the US, while the satellite stays in cash · from 27:45 · see the Q&A notes
5. Your retirement calendar
🎥 Watch me explain this
- ▶9:33Your 5-step planHow much do you need to retire in Australia? · from 9:33 · read the post
- ▶8:49Crucial mistakes to avoidHow to build a retirement portfolio with ETFs (Australia) · from 8:49 · read the post
6. Tax: inside and outside super
- Inside super, in pension phase: no tax on earnings or on selling ETFs, and pension payments are tax-free after 60. Franking credits are refunded.
- Outside super, in your own name: distributions are taxable each year, and selling ETFs can trigger capital gains tax. Hold for more than 12 months for the discount, and note the rules change from 1 July 2027. See CGT changes from 2027.
- Keep your annual tax statements from each ETF: they show the franking and any capital gains included in distributions.
🎥 Watch me explain this
- ▶48:36Tax and the distribution trapUnder the hood of an ETF with David Tuckwell · from 48:36 · read the post
7. Mistakes to avoid
- Selling shares every month to pay the pension. That’s exactly the risk the buffer removes.
- Leaving distribution reinvestment on. Your income ends up back in shares, and you sell more later.
- Chasing yield. A portfolio built only for income can shrink in real terms.
- Missing the minimum drawdown. If you take less than the minimum in a year, the pension can lose its tax-free status for that year.
- Forgetting the Age Pension. As your balance falls it rises, and it reduces what your portfolio needs to pay.
Our free retirement plan shows what comes from your super and what comes from the Age Pension, each year to 100, as a PDF.
Next: what to do when markets fall in retirement. More in the retirement cash buffer, how to retire with $1 million and the Retirement & SMSF hub.
General information only, not personal advice. It doesn’t consider your objectives, financial situation or needs. Super and tax rules are complex and change; check with your fund, the ATO or a licensed adviser. Examples are illustrations using the assumptions shown. ETFs named are examples, not recommendations; consider the PDS and TMD. Past performance is not a reliable indicator of future performance.
Frequently asked questions
How do I get an income from ETFs in retirement?
Hold your ETFs in an account-based pension, pay yourself a regular amount from a cash buffer, have distributions paid into the buffer, and top the buffer up once a year after good years by selling a little of what has grown most.
Should I reinvest ETF distributions in retirement?
Usually not. Having distributions paid into your cash buffer means your income is partly refilled automatically, so you sell less.
Are pension payments from super taxed?
From age 60, payments from an account-based pension are tax-free, and earnings in pension phase are tax-free too. Franking credits are refunded.
What is the minimum drawdown from an account-based pension?
From 1 July 2026 it’s 4% under 65, 5% from 65 to 74, 6% from 75 to 79, rising to 14% from 95, as a percentage of your balance on 1 July.
What should I sell first to pay my pension?
Pay the pension from cash. When you refill the cash after a good year, use cash from satellites you’ve already sold, then trim whatever has grown most above its target, then the core.