How will you use your super?
We spend decades watching our super balances grow but for those thinking about retirement in the next few years, it can be confusing to work out how best to use your super.
Here are some of the considerations for the popular options.
Easing into retirement
You can keep working and receive regular payments from your super when you have reached your super preservation age (55 to 60, depending on your date of birth) and are under 65.
Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option you must use a minimum 4 per cent and a maximum 10 per cent of your super account balance each financial year.
A transition-to-retirement strategy is not for everyone, and the rules are complex. It is important to get independent financial advice to make sure it works for you.
Pros
Allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary.
If there is spare cash each week or month, you can make extra contributions to boost your super, perhaps by salary sacrifice if it suits you.
There are tax benefits. If you are above 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed).
Cons
For people between 55 to 59, the taxable portion of the transition-to-retirement pension payments is taxed at your marginal tax rate, however you will receive a 15 per cent tax offset.
Withdrawing money from super reduces the amount you have later for when you retire.
It may affect Centrelink entitlements
Taking a retirement pension
This is the most common type of retirement income stream. It provides a regular income once you retire and you can take as much as you like as long as you don’t exceed the lifetime limit, known as the transfer balance cap.
Pros
While there is a minimum amount you must withdraw each year, there is no maximum.
There is flexibility - you can receive pension payments weekly, fortnightly, monthly, or even annually.
You can still choose to return to work and it won’t affect the income stream you have already commenced.
Cons
The account-based pension may affect your Centrelink entitlements
There is a risk that the amount in your super to draw on might not last as long as you do
The amount you can use for your pension is limited by the transfer balance cap.
Withdrawing a lump sum
You can choose to take your super as a lump sum or a combination of pension and lump sum payments, once you have met the working and age rules.
Pros
Gives you a chance to pay off any debts to help relieve any financial pressures.
Allows you to make an investment outside super in a property, for example.
Pay little or no tax if you are 60 and older.
Cons
If you are using the lump sum to invest, you may pay more tax
Reducing your super balance now means less for later
Receiving a lot of money at once may encourage you to spend more than is wise
Access to SMSF funds
There are a number of additional issues to consider for those with self-managed super funds (SMSFs). For example, you will need to carefully check your Trust Deed for any rules or restrictions for accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It is essential to consult a financial planner to understand your circumstances, so reach out to us if you'd like help.
The process of choosing the best approach for your retirement income can be daunting so let us walk you through the options and advise on the most appropriate strategies.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice prior to acting on this information. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the licensee or any of the Infinity group of companies, nor their employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document. Before making a decision to acquire a financial product, you should obtain and read the product disclosure statement (pds) relating to that product. Past performance is not a reliable guide to future returns. The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue.
