Superannuation: how to convert into income

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What is often lost in the constant discussions about super is that its basic purpose is to provide a means to save for retirement, the result of which will be used to provide an adequate income.

While many people will be relying on a full Government Age pension, the reality is you may need to top-up the pension with your own income to fund at least part of your retirement.  With eligibility for the Age Pension determined by constantly changing rules and thresholds, having your own income stream can provide a level of security and independence throughout your post-working life.

A growing number of Australians over preservation age are opting to commence a transition to retirement (TTR) strategy while they’re still working. TTR enables you to convert a portion of your superannuation balance into regular income payments, while you divert your salary from your job into your super savings. In addition, TTR offers possible tax benefits and the ability to contribute more to your superannuation which could be of real financial benefit.

Of course, you may reach your preservation age and decide that you’ve simply had enough of work and choose to be fully retired. If this is indeed the case, then making the best decision on how to pay for your future lifestyle using your superannuation savings is critical.

There may be a temptation to simply withdraw your balance as a lump sum and use this to fund your retirement. Through clever investment and savvy saving you may be able to make the most of this money, but ask yourself, what happens when it runs out or your investments don’t quite perform as you had hoped? You may think that you can simply claim an Age Pension from the Government. While this may seem possible today, there is a risk that legislation may change before you make your claim and you could be left with much less than you had anticipated.

As an alternative to a lump sum, retirees are increasingly transferring their superannuation savings into income stream products.

These include account–based pensions that, convert your super into regular payments, providing a regular income in retirement. Not only do such income streams give you flexibility to access your savings when you need it, the money that remains in the account continues to be invested by experts, and the earnings add to your account, which might mean your savings last longer. Depending on your circumstances, you may still be eligible to claim a part Age Pension from the Government as well.

For examples of how much income and Age Pension you could receive, simply enter a few details into AustralianSuper’s Retirement Income Calculator

Some retirees may also consider using their savings to purchase an annuity, which gives you a set regular income over a defined period of time. While such products may seem appealing to guarantee your income, they often lack flexibility should your needs change later in life. Unlike an account-based pension, your money is usually locked away and you can’t withdraw any time you like, which may not be ideal, particularly for retirees with smaller balances.

One of the most important decisions to make about retirement is how you will fund it, and make your hard-earned savings last as long as you do. Getting advice on the best way to use your super is an essential step to help you weigh up your options and ensure that you’ve got the right strategy in place so that you can enjoy your post-working years.

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This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, the Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those of YourLifeChoices and not necessarily the views of AustralianSuper. The article contains general information and you should consider if it is right for you. 

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Total Comments: 6
  1. 0

    I can’t agree with the TTR strategy. Whilst it is a great way to ease into retirement it also reduces the tax income so necessary for Governments. The extra funds placed into super may not be of great benefit to the individual subscriber but the total tax saving when all using the TTR will be substantial.

    • 0

      Your comments ‘extra funds placed into super may not be of great benefit to the individual…’ is illogical and wrong. It’s a strategy for individual to boost their super balances, long term increasing individuals ability to self fund.

    • 0

      Thanks CindyLou my thoughts are that the TTR works on the basis that an eligible person may draw funds out and replace them from a salary sacrifice. The funds coming out of super is tax free, the funds going into super attracts a tax of 15% and the salary sacrifice saves the taxpayer an amount of tax. My point is that the super fund can finish up with about the same amount and the only major difference is the amount of income tax saved by salary sacrificing.

  2. 0

    It’s a great way to boost your account balance and reduce your tax to enable you to become self funded. Remember you are still limited by the amount you can salary sacrifice dependant on your age.

  3. 0

    TTR is a great strategy to supplement income when just working part time. Part of the TTR withdrawal is still taxed but it can then be deposited back into the Super’n Fund as a non-concessional contribution.

  4. 0

    “What is often lost in the constant discussions about super is that its basic purpose is to provide a means to save for retirement, the result of which will be used to provide an adequate income.”

    Could not agree more with that comment!



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