Retirement should give you more freedom to enjoy life. Yet even people with healthy superannuation balances can worry about spending their savings. What happens if you live longer than expected? How much can you spend without running short? And how do you balance your own needs with leaving something for your family?
Annuities can provide regular income for a fixed period or for life, depending on the product you choose. Used alongside superannuation pensions, cash and other investments, they can help address some of the uncertainty around funding retirement.
Understanding how annuities work, including the trade-offs, can open up more options for building a retirement plan that suits your circumstances.
What are annuities
An annuity is a financial product purchased with a lump sum in exchange for regular income. Depending on the product and eligibility requirements, you can use superannuation money or savings held outside super.
The amount you receive depends on factors such as your investment, the payment period and the features you select. Some annuities provide fixed payments, while others offer payments that change over time.
There are two broad categories:
- Lifetime annuities, which continue paying for the rest of your life.
- Fixed-term annuities, which pay for an agreed number of years.
ASIC’s Moneysmart guide to annuities explains the basic features and considerations.
How do annuities help with longevity risk
Longevity risk is the possibility that you will outlive your savings. Planning around an average life expectancy can leave a gap if you live considerably longer.
A lifetime annuity addresses this risk by continuing to pay income for as long as you live, under the policy terms. A fixed-term annuity ends when its agreed term finishes, so it does not provide the same lifelong protection.
For someone worried about funding essential expenses later in life, a lifetime income stream can provide a dependable foundation. It may also make it easier to feel comfortable spending other savings earlier in retirement.
The right starting point is your household budget: what income do you need, which expenses are essential, and what income is already available? Our article on building a financially secure retirement explores these wider planning questions.
What types of annuities are available
Lifetime annuities
Lifetime annuities can suit people who want income that continues regardless of how long retirement lasts.
Depending on the product, you may be able to choose payments that start immediately or at a later date. Some products also offer an option for income to continue to your spouse after your death.
These choices affect the income offered, so compare the complete arrangement rather than the starting payment alone.
Fixed-term annuities
Fixed-term annuities provide income for a set period. Depending on the contract, some or all of your original investment may be returned through the payments, at maturity, or through a combination of both.
They can be considered for a defined period of expenditure or as part of a broader income strategy. You still need a plan for what happens when the term ends.
Fixed inflation-linked and market-linked payments
The payment structure matters as much as the duration.
Fixed payments offer predictability, but their purchasing power can fall as prices rise. Inflation-linked options can help income keep pace with changes in the Consumer Price Index, although your personal expenses may rise differently.
Some lifetime annuities offer market-linked payments. The payments continue for life, but their amount can rise or fall with the chosen market measure. A lifetime payment promise does not necessarily mean a fixed or guaranteed payment amount.
Challenger’s lifetime annuity information explains its payment options, features and risks.
Annuities and the Age Pension assets test
For some retirees, eligible lifetime annuities can improve Age Pension eligibility or increase a part pension. This depends on the product and the household’s overall financial position.
Under the rules for qualifying lifetime income streams purchased on or after 1 July 2019, the usual assets-test assessment is 60% of the purchase price from the relevant assessment day. This generally falls to 30% at the later of age 84 or five years after assessment day. Higher assessments can apply to products with certain capital-access or death-benefit features.
Once payments start, 60% of gross lifetime income payments is generally counted under the income test.
For example, if a $200,000 purchase qualifies for the standard 60% assets assessment, $120,000 would count under that assessment. The $80,000 difference is a reduction in assessable assets, not money paid to you or an investment return.
It does not automatically create an Age Pension entitlement. Both the income and assets tests, along with other eligibility rules, still apply. Fixed-term annuities have different assessment rules.
See Services Australia’s income stream assessment rules for the official explanation.
Do annuities protect your assets
It helps to separate three objectives: maintaining income, retaining access to capital, and leaving an inheritance.
Annuities can help secure an income stream, but that does not mean your original investment remains fully accessible or will always pass to your estate.
Some products provide withdrawal options for a specified period. The amount available may be less than you invested. Death benefits may also be limited to a particular period or reduce over time.
If leaving money to children is a priority, compare the estate outcome as carefully as the income outcome. Consider what happens if you die early, live for many years, or need substantial funds for care.
A guarantee is also a promise from the product issuer. Annuities are not covered by the Australian Government’s Financial Claims Scheme. Challenger explains this distinction in its overview of how annuities work.
How can annuities fit alongside other retirement investments
You do not need to use all your retirement savings to purchase an annuity. A plan can combine different sources of income and capital, each serving a purpose.
| Retirement resource | Possible role in your plan |
|---|---|
| Eligible Age Pension payments | A contribution towards ongoing living costs |
| A lifetime annuity | Income that continues for life under the policy |
| An account-based pension | Flexible withdrawals and investment choice, subject to applicable rules |
| Cash and term deposits | Money for emergencies and planned near-term expenses |
| Diversified growth investments | Potential long-term growth, with investment risk |
An account-based pension allows your remaining balance to stay invested. Its longevity depends on withdrawals, investment performance and costs. A lifetime annuity transfers the obligation to keep paying the agreed lifetime income to the issuer, in exchange for the purchase price and contractual restrictions.
Combining them may help balance certainty, flexibility and growth. The appropriate mix depends on your
A practical retirement planning example
Consider a hypothetical retired couple whose essential expenses include groceries, utilities, insurance and transport. Their Age Pension covers part of these costs, while their other spending includes travel and helping family.
They could ask their adviser to compare:
- Keeping their existing pension and investment arrangements.
- Using part of their savings for a lifetime annuity to help cover essential costs.
- Retaining enough accessible money for emergencies, holidays and future care.
The comparison should model income over time, inflation, potential Centrelink changes and the estate value if either partner dies at different ages.
The couple may value greater income certainty, or they may decide access to capital matters more. The purpose of the exercise is to understand the consequences before making a commitment.
This example illustrates a planning process; it does not suggest an investment amount or predict a financial outcome.
Are annuities tax-free
Tax treatment depends on your age, the source of the purchase money and the applicable rules.
Income from an annuity purchased with superannuation money is generally tax-free from age 60 where it is paid from a taxed source. Different treatment can apply to untaxed components and certain other income streams.
Annuities purchased with money outside super can have taxable and non-taxable components. Death benefits can also have different tax outcomes.
The ATO explains the relevant distinctions in its guidance on superannuation pensions and annuities.
What should you consider before buying an annuity
Before choosing a product, work through these questions:
- Access: How much money must remain available for emergencies, home repairs or aged care?
- Inflation: Will the payment structure support your spending needs as prices change?
- Family: What would your spouse or beneficiaries receive if you died?
- Value: How do the quoted payments, capital returns and any advice costs compare with alternatives?
- Risk: What guarantees does the issuer provide, and which risks remain?
- Eligibility: How will the product affect tax, superannuation limits and Centrelink assessments?
An annuity payment can include a return of your own capital. A quoted annual payment divided by the purchase price should therefore not automatically be treated as an interest rate or compared directly with a term deposit rate.
Read the current Product Disclosure Statement and Target Market Determination, and obtain a personalised quote before deciding.
Frequently asked questions about annuities
Can I buy an annuity using only part of my super
Yes, subject to access rules and product requirements. Using part of your super may allow you to retain other retirement income and investment options.
Will an annuity increase my Age Pension
It may, but there is no automatic increase. The outcome depends on the product’s assessment and your household’s income, assets and eligibility.
What happens to an annuity when I die
That depends on the contract. Payments may continue to an eligible beneficiary, a death benefit may be payable, or benefits may cease. Check the applicable periods and conditions.
Can I withdraw my money
Some annuities allow withdrawals under specified conditions. Access can be restricted, and the withdrawal amount may be less than the original investment.
Explore annuities as part of your retirement plan
If concerns about longevity, spending or your remaining assets are making retirement decisions difficult, reviewing your income options can help.
At Holzworth Partners, we can help you assess how annuities may fit alongside your superannuation, investments, potential Age Pension and family priorities.
Book a retirement planning appointment with Holzworth Partners to explore a strategy suited to your circumstances.
General information only. This article does not take account of your objectives, financial situation or needs and is not personal financial or tax advice. Consider the relevant product documents and obtain advice before acting. Rules and product terms can change. Information checked on 23 October 2026.
