Accessing your super
As retirement approaches you need to decide what to do with your super
Once you retire and have reached your preservation age you will be able to access the hard-earned savings in your super account. When this time comes, you have two main options:
- withdraw some, or all, of your super as a cash
- start an income stream with your super.
Withdraw a cash lump sum
You can withdraw some, or all, of your super as a cash lump sum. Lump sum withdrawals are usually tax-free if you are over 60 years of age, and can be used to:
- pay-off any remaining debts, such as a mortgage
- renovate your home
- travel around Australia or overseas
- invest your money other types of investments that suit your needs, such a term deposit, property or investment bond.
A disadvantage of withdrawing a lump sum is that you could be tempted to spend your money on non-essentials, and later regret your decision if you don’t have enough money to enjoy your retirement.
Start an income stream
Most people use the majority of their super savings to start a regular income stream in retirement. There are a number of different income stream investments you can choose from. The two most popular options are account based pensions and annuities.
Types of income streams
An account-based pension is a regular income stream that you can start by transferring money from your super account to an account-based pension account. Account-based pensions are also referred to as allocated pensions.
Advantages of account-based pensions
- You can choose how much income you want to receive (within the minimum and maximum allowed).
- You don’t pay tax on investment earnings.
- You can make a lump sum cash withdrawal at any time.
- Your money can continue to be invested like it was in super, giving you the opportunity to grow your capital.
The main disadvantages of account-based pensions are that it is not guaranteed to last for a set period of time and any downturn in investment markets will reduce the amount of money you have to live on in retirement.
There is also a limit on the amount of money that can be transferred to a tax-free account-based pension. This limit, known as the ‘transfer balance cap’, is currently $1.7 million.
An annuity is a financial product that you buy with a lump sum from your super or from other assets you have.
There are different types of annuities available that will pay you a regular amount of money for either:
- a set period of time, such as 15 years
- your lifetime.
The advantage of an annuity is that you will be protected from the effect of declining investment markets because the risk is borne by the seller of the annuity – you still receive your regular income irrespective of market performance.
The disadvantages are that you do not receive any investment earnings from rising investment markets and income payments generally stop upon death, although there are annuities that can continue to provide payments to your partner or dependants.
Your financial adviser can help
Your financial adviser can help you make the most of you super savings in retirement. If you don’t have a financial adviser, we can help you find one.