Your retirement 'pay cheque'

Nothing beats the reassurance of knowing there’s money coming in each month. Then retirement happens and, suddenly, it’s up to you to generate income to live on. The good news is, stability is something you don’t need to give up.

As humans, we’re wired to stick to what we know. It feels familiar and comfortable, but it’s not always the best option for us. Especially when we rely on assumptions that don’t match up with reality. Your super is only one part of your retirement income plan. In reality, most people will be supported by other sources of income such as the Age Pension or income from other investments such as shares or property. Below is a summary of three key sources of retirement income, and we’ll get to the bottom of some of the things people often get wrong about each one.

1. Income from your super: account-based pensions or allocated pensions
When you retire, one option is to roll your super over into an account-based pension that uses your super to provide you with a regular income in retirement. You get to choose how often you receive your income payments, and how much of your super you withdraw each year (provided it meets the minimum withdrawal requirements). You can also generally make lump sum withdrawals at any time.

Perhaps the biggest misconception about account-based pensions is the level of certainty they provide. As each payment will draw from your super savings, your payments will generally stop as soon as your savings have run out. Something else to bear in mind, is that part of the account-based pension balance is typically linked to the share market as you generally have the opportunity to invest in a range of market-linked assets and so your investment – and how long your payments last – could depend on market performance. If markets perform poorly, depending on the proportion of your super that is linked to the market, your super is at a greater risk of running out.

Older Australians’ concerns about market performance are not surprising in light of the retirement income losses experienced at the height of the global financial crisis (GFC). Superannuation balance falls of around 20 per cent affected the majority of retirees at the time.

2. Income from the Age Pension
Once you reach Age Pension age, you might be eligible for Age Pension payments and a series of other benefits. Eligibility for the Age Pension depends on your circumstances and the outcome of Centrelink’s assets and income tests.

In Australia, we’re lucky to have the Age Pension to fall back on if our retirement savings run out. It can be common to assume that the Age Pension alone will be enough to live on. The reality is that even the full Age Pension entitlement isn’t enough to cover the cost of living for many retirees.

Association of Superannuation Funds of Australia (ASFA) Retirement Standard figures (September quarter 2020)

 Comfortable lifestyle budget p.a. Modest lifestyle budget p.a. Age Pension p.a.
Couples aged about 65 $62,083$40,440$37,014
Single person aged about 65$43,901$27,987$24,552

3. Lifetime income streams
A lifetime income stream, such as a lifetime annuity, provides you with guaranteed income for your lifetime, in return for a lump sum investment from your super or your savings. The key difference to an account-based pension is that your payments are guaranteed for as long as you live. So even if you live longer than you expect, you’ll have the certainty and peace of mind that your income payments will continue, and can continue for your spouse’s life if you choose.

A common assumption people make is that you either have an account-based pension oran annuity. In fact, you don’t have to put all your super or savings into an annuity. You can use part of your super or retirement savings to buy an annuity, while the rest of your money stays in your super or other investments. An annuity provides an additional layer of protection in retirement because your payments won’t be affected by how share markets perform. It provides a source of income that creates a stronger safety net for your retirement.

A lifetime annuity can work alongside your account-based pension

 Account-based pensionLifetime annuity
Regular paymentsYesYes 
Income payments Payments generally continue until your investment runs out Payments are guaranteed under the policy and payable for life  
Income certainty Payments are impacted by share market movements or interest rate fluctuations Payments are not impacted by share market movements or interest rate fluctuations 
Easy access to your capital/ability to make partial withdrawals Usually, yesWhile lifetime annuities are designed to be held for life, there is usually a long period where you can access a lump sum if your circumstances change. Partial withdrawals are not generally available.
Inflation protection No – your payments may increase in line with inflation, but generally your capital isn’t protected as you are simply withdrawing more from your balanceOption to index payments to inflation 

Guaranteed, regular income to support you in retirement
One thing 2020 has taught us is that life can quickly take twists and turns we didn’t expect. Having a secure source of income is another way to support a positive outlook in retirement. With a lifetime annuity, you can receive a guaranteed monthly income, no matter how long you live, or how share markets perform.

Find out more about Challenger lifetime annuities here or use the Challenger Retire with confidence tool to discover how a comprehensive retirement income plan can support a positive outlook in retirement.

Challenger is a preferred partner of YourLifeChoices.

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The information in this article is provided by Challenger Life Company Limited ABN 44 072 486 938, AFSL 234670 (Challenger Life), general only and has been prepared without taking into account any person’s objectives, financial situation or needs. Because of that, each person should, before acting on any such information, consider its appropriateness, having regard to their objectives, financial situation and needs. Each person should obtain and consider the Product Disclosure Statement (PDS) before making a decision about whether to acquire or continue to hold the relevant product. A copy of the PDS can be obtained from your financial adviser, our Investor Services team on 13 35 66, or at All references to guaranteed payments from Challenger refer to the payments Challenger Life promises to pay under the relevant policy documents. Neither the Challenger group of companies nor any company within the Challenger group guarantees the performance of Challenger Life’s obligations or assumes any obligations in respect of products issued, or guarantees given, by Challenger Life.

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