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 your time in retirement, but helps you make the most of it.
What are some options?
- Turn your super into a secure retirement income
- Turn your super into a flexible retirement income
- Find the right combination to suit your needs
A secure retirement income
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.
A flexible retirement income
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, the catch is that your income is not guaranteed - if the markets underperform, you could find yourself earning less than you anticipated.
What's the right combination?
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.