Required Minimum Distributions (RMDs) are a crucial, often misunderstood piece of the retirement planning puzzle. With 2025’s regulatory tweaks and demographic shifts, understanding RMDs is more important than ever for Australians looking to maximise their super and avoid surprise tax bills.
What Are RMDs and How Do They Work in Australia?
While the term RMD is more commonly used in the US, in Australia, the concept is similar: retirees are required to withdraw a minimum amount from their superannuation income streams each year once they reach a certain age. This is designed to ensure super savings are used for retirement, not indefinitely deferred or left as an estate windfall.
For 2025, the key rules are:
- Minimum drawdown rates: The government has reverted to pre-pandemic minimums. For those aged 65–74, it’s 5% of your account balance; for 75–79, it’s 6%, and so on, increasing with age.
- Applicable products: Account-based pensions, transition-to-retirement income streams, and similar products are all subject to minimum drawdowns.
- Timing: The minimum must be withdrawn by 30 June each financial year to avoid tax penalties.
Example: If you’re 70 and your account-based pension has a $600,000 balance on 1 July 2024, your minimum drawdown for 2024–25 will be $30,000 (5%).
2025 Policy Updates: What’s Changed?
After several years of pandemic-era relief (with minimums halved to support market volatility), the government confirmed in the May 2024 Federal Budget that standard drawdown rates would fully resume from 1 July 2024. This means retirees must now withdraw larger minimum amounts, impacting both retirement income and investment strategy.
- No more temporary reductions: The 50% reduction ended June 2024; minimums are back to pre-COVID levels.
- ATO compliance focus: The ATO has flagged renewed attention on minimum withdrawals and reporting, particularly for SMSF trustees.
- Age changes: The minimum drawdown still begins at age 65, not 60, despite calls from some industry groups for earlier access.
These changes mean retirees must review their withdrawal plans to ensure compliance and avoid excess tax. For SMSF members, missed minimums can result in pension income being taxed at 15% instead of 0%—a costly mistake.
Strategies to Optimise RMDs and Minimise Tax
With higher mandatory withdrawals, retirees have new opportunities—and risks—to manage. Consider the following strategies:
- Stagger withdrawals: Rather than withdrawing a lump sum at year-end, consider spreading payments through the year to smooth cash flow and market risk.
- Reinvest excess funds: If you don’t need the full RMD for living expenses, consider reinvesting in non-super investments, such as managed funds or shares, to keep your money working for you (noting potential capital gains tax implications).
- Review asset allocation: With larger withdrawals, you may need to rebalance your super portfolio to ensure you’re not forced to sell growth assets in a downturn.
- Plan for Centrelink: Larger withdrawals could affect your Age Pension entitlements due to the income test, so factor this into your overall strategy.
Example: Jane, aged 77, must withdraw at least 6% of her $800,000 pension balance in 2024–25 ($48,000). She only needs $35,000 for living costs, so she reinvests the surplus in a family trust for tax-effective wealth transfer to her children.
Key Takeaways for 2025 and Beyond
- Check your minimum drawdown rate for your age and ensure you’re on track before 30 June.
- Understand the tax risks of missing your RMD—especially if you manage your own SMSF.
- With higher minimums, update your investment and estate plans to make the most of your super while balancing lifestyle, legacy, and tax.
As 2025 brings RMDs back into sharper focus, proactive planning can help you turn regulatory requirements into retirement opportunities.
