From purchase to pension: planning your endgame

You’ve run the Two-Tick Test. Both boxes are ticked. You’ve done the work. Now let’s make sure you can actually enjoy the rewards when retirement comes.

We’ve reached the final chapter.

If you’ve made it this far, you’ve learned a lot. You understand the rules. You know the numbers. You’ve thought about what kind of property suits your SMSF. You’ve assembled your professional team.

But there’s one more piece to the puzzle: the endgame.

Because SMSF property isn’t a destination. It’s a vehicle. The destination is a comfortable retirement. And if you don’t plan how you’ll get from property ownership to pension payments, you might find yourself stuck at the side of the road.

Let’s make sure that doesn’t happen.

The sweet spot

Throughout this book, I’ve talked about finding your sweet spot.

Let me define it precisely.

The sweet spot is where both ticks of the Tradie’s Two-Tick Test are firmly in place, and your endgame is planned.

Tick 1: Should you? You’ve answered yes with confidence. SMSF property fits your goals, your risk tolerance, and your life situation.

Tick 2: Can you? You’ve confirmed the rules allow it, the numbers work, and you have the resources to execute.

Plus: Endgame planned. You know how you’ll transition from accumulation to pension, how you’ll pay benefits, and what happens when you’re gone.

Miss any of these elements and you’re outside the sweet spot.

The sweet spot isn’t just about buying well. It’s about buying well, holding well, and exiting well. The whole journey, not just the first step.

Every building needs exit doors

When architects design buildings, they don’t just think about how people get in. They think about how people get out.

Fire exits. Emergency stairs. Clear signage. Multiple routes to safety.

Good buildings have multiple exit options. If one route is blocked, you can use another.

Your SMSF property strategy should work the same way.

If your only exit is selling a $900,000 house in a falling market while your spouse needs aged care and your pension payments are due, you’re trapped. You’ve got no options. You’re at the mercy of circumstances.

Smart SMSF investors plan multiple exits:

• Liquid assets alongside property (cash, shares) to fund pensions without selling

• Properties in markets that stay active even in downturns

• Clear plans for what happens if a member dies

• Insurance to cover unexpected obligations

• Reversionary pension structures so benefits continue seamlessly

The sweet spot includes knowing how you’ll get out, not just how you got in.

Understanding the pension phase

When you’re working, your super is in “accumulation phase”. Money goes in. It grows (hopefully). It gets taxed at 15%.

When you retire, you can start a “pension” from your super. This is where things get interesting.

In pension phase, the earnings on your super (including rental income) are taxed at zero per cent. Not 15%. Zero.

Capital gains? Also potentially zero if the asset is supporting a pension.

This is a huge benefit. It’s one of the main reasons SMSF property can work so well for retirement.

But there’s a catch.

The $3 million question: Division 296

Before the drawdown rules, one more piece of 2026 law, because it lands exactly here, in the endgame.

From 1 July 2026, Division 296 adds an extra personal tax for anyone whose total superannuation balance, across every fund they belong to, is above $3 million. Earnings attributable to the portion between $3 million and $10 million are taxed at a headline 30 per cent instead of 15. Earnings attributable to anything above $10 million cop a headline 40 per cent. It’s assessed per member, not per fund, and the first assessments arrive after 30 June 2027.

Three design features matter for property investors.

It only taxes realised earnings. Rent, interest, dividends and gains on assets you actually sell. The original proposal taxed paper gains on assets you hadn’t sold, which would have been brutal for property-heavy funds; that was removed from the final law. Your property can double in value on paper without triggering this tax. Selling it is what counts.

The thresholds are indexed. The $3 million line rises with inflation in $150,000 steps, and the $10 million line in $500,000 steps, so ordinary growth doesn’t quietly drag you over.

There’s a one-off election with a deadline. SMSFs can choose to reset the cost base of all fund assets to their market value at 30 June 2026, so gains built up before that date are excluded from Division 296 calculations when you eventually sell. It’s all assets or none, it can’t be reversed, and it has to be made by the due date of the fund’s 2026-27 tax return. If your fund holds property with large built-in gains and any member could plausibly cross $3 million one day, this election is a conversation to have with your accountant this year, not later.

If your balance is nowhere near $3 million, Division 296 doesn’t touch you, and most readers of this book are in that camp. But property plus contributions plus decades of growth is exactly the combination that gets people there, and if it happens, the tax is payable by you personally or released from the fund, which is one more reason the liquidity planning later in this chapter matters.

The catch: minimum drawdowns

Once you start a pension, you must draw a minimum amount each year. This is a legal requirement. You can’t just leave the money sitting there.

The minimum depends on your age.

Age	Minimum annual drawdown (%)
Under 65	4%
65 to 74	5%
75 to 79	6%
80 to 84	7%
85 to 89	9%
90 to 94	11%
95 and over	14%

So if your SMSF has $1 million and you’re 67, you must draw at least $50,000 per year as pension payments.

Here’s the problem: pensions must be paid in cash.

You can’t pay a pension with half a bathroom. You can’t give your members a percentage of the property each year. You need actual cash.

If your SMSF is 90% property and 10% cash, and your minimum drawdown exceeds your cash reserves, you’ve got a liquidity problem.

The liquidity problem in action

Let me illustrate with numbers.

SMSF balance: $1,000,000

Property value: $850,000 (85% of fund)

Cash and shares: $150,000 (15% of fund)

Member age: 67

Minimum drawdown: 5% = $50,000 per year

Net rental income: $30,000 per year

See the problem?

The minimum pension is $50,000. The rental income is $30,000. There’s a $20,000 shortfall each year.

In year one, you draw from the cash reserves. Balance drops to $130,000.

In year two, another $20,000. Balance drops to $110,000.

In year three, balance drops to $90,000.

And so on.

Within eight years, you’ve run out of liquid assets. Now what?

You either need to sell the property (possibly at a bad time, possibly with capital gains tax implications), or you breach the minimum drawdown rules (which has its own consequences).

This is why liquidity planning matters so much.

Helen and Bruce plan their endgame

Helen and Bruce have done well. They bought their SMSF property eight years ago, and it’s grown nicely. But now, with retirement on the horizon, they’re thinking about what comes next.

They sat down with their financial adviser to map out the endgame.

Current position: Fund is 71% property ($850,000) and 29% other assets ($350,000). Net rental income is $35,000 per year.

Projection at age 65: Assuming continued contributions and growth, they expect the fund to be worth about $1.5 million. If the property grows to $1 million, other assets would be around $500,000.

Minimum drawdown at 65: 5% of $1.5 million = $75,000 per year.

Expected rental income: Around $45,000 per year (assuming rent grows with inflation).

Shortfall: $30,000 per year to be funded from other assets.

At that rate, the $500,000 in liquid assets would last about 17 years (longer if invested and growing). By the time Helen is 82 and Bruce is 83, they’d need to reconsider.

Their adviser proposed a strategy:

Option A: Sell the property before starting the pension and reinvest in a diversified portfolio. Simpler, more liquid, easier to manage as they age.

Option B: Keep the property but plan to sell it around age 75 when liquid assets start running low. Gives them more years of property exposure.

Option C: Keep the property indefinitely and hope the rental income increases enough to cover drawdowns. Riskiest approach.

Helen and Bruce chose Option B. They’d keep the property for another 10 to 15 years, enjoying the tax-free rental income, then sell when liquidity becomes critical.

They also put two other safeguards in place.

Reversionary pensions: protecting each other

What happens if Helen dies before Bruce, or vice versa?

In a standard pension, when the member dies, the pension stops. The benefits might need to be paid out, potentially triggering a forced sale of assets.

A reversionary pension is different. It’s set up so that if one member dies, the pension automatically continues to the other member. No interruption. No forced actions. The surviving spouse keeps receiving the pension.

Helen and Bruce set up reversionary pensions. If Helen dies, Bruce’s pension continues seamlessly. If Bruce dies, Helen’s pension continues.

This is especially important when you have illiquid assets like property. You don’t want a death to force a fire sale.

What happens when you’re both gone

Eventually, both members will die. (Sorry to be blunt, but it’s relevant.)

When the last member of an SMSF dies, the fund must pay out all the benefits. It can’t keep running forever with no members.

Benefits can go to:

• A spouse or de facto partner (tax-free regardless of age)

• A child under 18 (tax-free)

• A child 18 or over who is financially dependent (tax-free)

• An adult child who is not dependent (taxed, potentially heavily)

• Other dependants in certain circumstances

• The estate, to be distributed according to the will

If your adult children inherit your super and they’re not dependants, they could face tax of up to 17% on the taxable component (the portion that was contributed from concessional contributions).

This is where estate planning gets important.

You need binding death benefit nominations. These tell the trustee exactly where to pay the benefits. Without them, the trustee (which might be your kids, or a corporate trustee) makes the decision.

Helen and Bruce updated their nominations. They specified that on the death of the surviving member, benefits go to their adult children in equal shares. They understood the potential tax implications and planned accordingly.

Insurance: the backup plan

What if something goes wrong before retirement?

Helen gets sick and can’t work. Bruce is injured in an accident. The contributions stop but the loan repayments don’t.

This is where insurance inside super can help.

• Life insurance pays a lump sum if a member dies

• Total and permanent disability (TPD) insurance pays if a member can never work again

• Income protection insurance replaces income if a member is temporarily unable to work

Insurance premiums paid from super reduce your balance, but they also reduce the risk of catastrophe.

Helen and Bruce reviewed their insurance and decided to hold life and TPD cover inside the SMSF. It gave them peace of mind that even if something unexpected happened, the fund would have resources to cope.

The integrated plan

Here’s what Helen and Bruce’s endgame plan looks like.

Now to age 65: Continue contributing. Keep the property. Build the liquid asset buffer. Stay compliant.

Age 65 to 75: Start pensions. Draw minimums from liquid assets while enjoying tax-free rental income. Monitor the balance.

Around age 75: Reassess. If liquid assets are running low, sell the property and reinvest in a diversified portfolio. If the fund is healthy, consider keeping the property longer.

Throughout: Reversionary pensions protect the surviving spouse. Insurance covers catastrophic scenarios. Death benefit nominations ensure benefits go where intended.

This is a complete plan. Purchase to pension to legacy. The whole journey.

That’s the sweet spot.

Bringing it all together

We’ve covered a lot of ground in this book.

We started with the honest question: should you? We talked about when to walk away. We ran the numbers. We learned the rules. We compared residential and commercial. We demystified LRBAs. We found the right property. We assembled the team. We stayed compliant.

And now we’ve planned the endgame.

If you’ve done all of this, you’re in a small minority of SMSF property investors. Most people stumble into one of these steps without thinking it through. They buy without understanding the rules. They hold without planning for pension phase. They exit in a panic because they didn’t think ahead.

You’re different. You’ve done the work.

That doesn’t guarantee success. Property markets move. Rules change. Life throws curveballs. But you’ve given yourself the best possible chance.

You’ve found your sweet spot.

One last thought

SMSF property is not for everyone.

I’ve said it throughout this book, and I’ll say it one more time. Some people shouldn’t do it. Some people should wait. Some people should walk away.

But for those who are right for it, at the right time, with the right resources and the right plan, SMSF property can be a powerful tool for building retirement wealth.

The key is being honest with yourself.

Honest about whether you’re ready. Honest about whether the numbers work. Honest about whether you’ve got the time, the knowledge, and the commitment to do it properly.

If you can answer yes to all of that, genuinely and without self-deception, then you might have found something worth pursuing.

And if you can’t answer yes, that’s okay too.

Finding out you’re not ready is valuable information. It saves you from a mistake. It gives you a target to work towards. It protects your retirement from a decision that might have hurt it.

Either way, you win.

Find your sweet spot, or have the guts to walk away.

Now go build your retirement.