There are different ways to access your superannuation in retirement, including turning it into a regular income. And how you decide to access your super can impact the funds you have available to create your retirement lifestyle.
Keep in mind you don't need to limit yourself to just one option. In fact, drawing on your super in more than one way could give you an income that not only covers the duration of your retirement, but helps you make the most of it.
Using some of your super to buy an annuity guarantees you a set, regular and tax-effective income for either a specified period or for the rest of your life, no matter how the markets perform.
If you're aged 60 or over, you usually won't have to pay any tax on your super annuity income. If you're under 60 but have reached your preservation age, you're entitled to a 15% tax offset on any taxable portion of your super annuity income.
Long-term annuities offer indexing which means you can choose for your income to grow with inflation or at a certain rate.
However, while annuities offer security, the trade-off is giving up the opportunity for your money to grow when the markets are strong.
Buying an annuity when interest rates are low may also mean a lower level of income than other options, depending on interest rates and market fluctuations.
An account-based pension pays you a regular income from your super. The money remains invested in your super account and you can choose how that money is invested. This means that when markets are strong, you have the chance to earn more.
You pay no tax on investment earnings (if you are over 60 years of age) and within certain rules, you can vary the amount you draw depending on your changing needs and how your investments are performing. You can even make lump sum withdrawals if you need them.
However, your income is not guaranteed - if the markets underperform, you could find yourself earning less than you anticipated.
You could divide your super income stream into an account-based pension and annuity. This would give you a guaranteed base income, with the opportunity to see your super balance grow.
You could also take some of your super as a lump sum payment to pay off debts, while using the rest to fund a long-term income stream.
It's important to pick the right option for your individual situation. A financial planner can help you choose the right strategy for you.
Things you should know
This article contains general advice only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial planner before making any financial decision based on this information. This document has been prepared by Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139, (Commonwealth Financial Planning) a wholly-owned, but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning.
Information in this article is based on current regulatory requirements and laws. While care has been taken in the preparation of this document, no liability is accepted by Commonwealth Financial Planning, Commonwealth Financial Planning related entities, agents and employees for any loss arising from reliance on this document. Commonwealth Financial Planning is registered with the Tax Practitioners Board as a Registered Tax (Financial) Adviser. However your Financial Planner is not a Registered Tax Agent. Consequently, tax considerations are general in nature and do not include an assessment of your overall tax position. You should seek tax advice from a Registered Tax Agent.
