I got asked a simple question on social media this week, one that most people in the retirement and superannuation industry think people already know the answer to. But to my surprise, it sparked an enormous conversation.

The question was “If I’m retired why wouldn’t I just take all my money out of super and put it in the bank?” Apparently, many people are unaware of the benefits of keeping their money in super, and don’t know about the really juicy upside of moving your superannuation into a retirement phase account so you can enjoy tax-free income when you’re retired.

So today we’re going back to basics – to what actually happens to your money the day you retire and why that decision, more than almost any other that you’ll make determines how far your retirement savings might stretch.

While you’re working, your super sits in what’s called the accumulation phase. Most people reach retirement today with a reasonable or even large balance in their accumulation phase account, unable to access it until they meet two key conditions: reaching the official superannuation access age of 60, and ceasing just one job/employment relationship (even if they go back to work elsewhere afterwards) or, or simply turning 65 at which point you can access your super unconditionally, whether you’re working or not.

During your working phase of your life, you contribute to your superannuation account chiefly from your employer contributions, which are taxed at up to 15 per cent on the way in up to the concessional contribution cap of $32,500.

And once the money is inside super investment earnings are taxed at 15 per cent and capital gains at up to 10 per cent because superannuation still gets a one-third discount on assets held longer than 12 months.

Why on earth does the bank feel more compelling? I think it comes down to familiarity.

But from the day you retire you’re allowed to move some or all of that money, up to $2.1 million, into a retirement phase account, sometimes labelled a retirement pension, account-based pension or income stream, depending on your fund.

And the minute your money lands in this account, you benefit because the earnings on that money becomes completely tax-free. There’s no income tax payable and no tax on the capital gains. And moreover, you can draw money out at any time either as a lump sum or as a regular income stream that can feel much like a pay cheque, though funds do require you to draw down a minimum amount each year, once you’re in the retirement phase, starting at 4 per cent of your balance if you’re under 65, and rising as you get older.

That means every single dollar your investments earn inside your retirement account is yours to keep, and if your investments are growing, you can let them compound even more strongly than they might have in an accumulation account where the taxman would take 15 per cent out in tax on earnings each year.

When you move your money from an accumulation account into a retirement account, it stays invested – and you still have choices around how it’s invested and how much risk you want exposure to. But if you stayed invested in the same things, and just switched accounts, the returns for the retirement phase would be higher, simply because of the tax.

Now compare that to the bank account that my community member was tempted by. Every dollar of interest you earn from a bank account gets added to your taxable income and taxed at your full marginal rate.

If you’ve still got a part-time wage coming in or any other income sources kicking along outside super that could mean handing 30, 37 or even 45¢ in every dollar to the tax office. Inside a retirement account, that growth will cost you nothing.

Let’s compare the latest returns on superannuation funds in both the accumulation and retirement phase, which Chant West released just over a week ago, with how someone who’d put all their retirement savings into a bank account.

Chant West’s own data shows exactly what that tax difference is worth to someone’s hip pocket. Take the Hostplus Balanced fund. Held in an ordinary accumulation phase account it returned 8.9 per cent a year over the 10 years to June 2026. Held in the retirement phase, the same investment strategy, same fund, same underlying assets returned 10.1 per cent a year.

That’s a gap of more than a full percentage point every single year purely because of tax. Compound that over a 25 or 30 year retirement, and it’s the difference between having enough or rationing your money carefully to make it through the last decade.

To bring this picture to life, I asked Chant West’s Ian Fryer to run the numbers for someone retiring at 65 with $500,000 in their super, drawing the minimum required 5 per cent a year for the next 10 years, using the returns from mid-2016 to mid-2026.

If that $500,000 had gone into term deposits instead, drawing the same 5 per cent out every single year, the retiree would have ended their decade with about $404,000. On the surface that looks OK, but once you strip out the inflation rate, that $404,000 is really only worth about $299,000. In real terms their savings had gone backwards by more than a third.

Now, let’s compare that with the same $500,000 left in a typical balanced retirement account inside super, invested with around half in growth assets and drawing the same 5 per cent a year.

Based purely on that those funds were targeted to earn, which is usually CPI + 2.75 per cent, they’d already have finished the decade ahead, at around $521,000. And because balanced super funds have actually beaten their own targets over the last 10 years, the real-world median returns leaves that retiree, 10 years later, with $579,000, which is worth about $427,000 once you adjust for inflation.

Stop and think about it. That’s the same starting balance, and the same amount drawn from super every year for 10 years. The only thing that changed was where the money sat – either in a term deposit at the bank or inside a retirement phase superannuation account.

The gap between the two is $174,000 in nominal terms, or roughly $129,000 once you account for inflation. That’s tax-free compounding in action.

So why on earth does the bank feel more compelling? I think it comes down to familiarity. People understand bank accounts and term deposits - they’ve had them their whole life. They can log in, see their money sitting there and sleep at night without the markets moving around while they sleep.

Super, by comparison can feel like a bit of a black box, run by someone you don’t know as well, invested in things you’ve never really understood. And the balance can move around in ways that make you uncomfortable.

And then there’s the fear of the government tinkering with it, something that is increasingly coming to the fore in every education session I run. If you feel that way, you’re clearly not alone – thousands of people on Facebook felt the same this week.

But there’s more to learn about super as you approach retirement because in the retirement phase it does something exceptional – it grows, completely tax-free. And that might be more valuable than you’d ever contemplated.

Bec Wilson is author of the bestseller How to Have an Epic Retirement and the newly released Prime Time: 27 Lessons for the New Midlife. She writes a weekly newsletter at epicretirement.net and hosts the Prime Time podcast.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.