30th Nov 2015
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Dangers of a lump sum withdrawal
Dangers of a lump sum withdrawal

When planning your retirement, the idea of a cashing out your superannuation as a lump sum may be appealing, especially if you’ve saved hard all your life. But before you make a grab for the cash, you may want to consider some of the dangers associated with a lump sum withdrawal from your superannuation.

How long will you live in retirement?
Well, how long is a piece of string? No one can accurately predict how many years your superannuation will have to last to fund your retirement years, but according to the Australian Bureau of Statistics, a male now aged 65 years will live to 84 and for women it’s a little longer – 87 years. That’s 19 and 22 years respectively your lump sum will need to last if you retire at 65.

What will your lifestyle be?
The temptation of a lump sum for some will be to live large and never mind the consequences. But even if you have a more measured view, you may be surprised by just how much it will take to fund your lifestyle. Assuming you own your home outright, the Association of Superannuation Funds of Australia (ASFA) Retirement Standard currently quotes $23,662 per annum for a single person to live a modest lifestyle and $42,861 for a comfortable lifestyle. And if your preferred lifestyle is lavish, then you’ll need significantly more.

What other savings do you have?
If your superannuation is your only means to fund your retirement, you should give careful consideration to making a lump sum withdrawal. Even if you have other savings or assets that you can sell, once these are gone, you may not have access to other funds. Consider keeping your superannuation invested and using a retirement income account to pay yourself a regular income. It could see your savings last longer, as they stay invested, as well as giving you more control along the way.    

Will you get an Age Pension?
If you’ve spent your entire super, your plan may be to then rely on an Age Pension provided by the Government. While currently you may be considered eligible, it’s worth bearing in mind that legislation changes and by the time you need it, the Age Pension may be much less than you were expecting. You might want to consider using a retirement income account to top up any Government Age Pension payments you’re eligible for, giving you more money when you retire.

“There are no one-size-fits-all solutions in super, because retirement means something different to everyone,” says Natashya Vikram*, a financial planner who works with AustralianSuper members. “But taking the right decisions can make a big difference to your quality of life in retirement, so getting professional advice and information relevant to your personal circumstances is a sensible place to begin.”  

Before making a lump sum withdrawal, you should consider all your options, from retirement income accounts, to Government Age Pensions, or a combination of both. You may be surprised how a regular income stream could work better for you in the long term. Speak to a financial planner to get advice on the best option for your situation.

*Natashya Vikram is an Authorised Representative of Industry Fund Services Limited ABN 54 007 016 195 AFSL 232514. The financial advice you receive will be provided under the Australian Financial Services licence held by a third party and not by AustralianSuper Pty Ltd and therefore is not the responsibility of AustralianSuper.

This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788. The views expressed are those of YourLifeChoices and not necessarily those of AustralianSuper. For more information, please visit www.australiansuper.com/yournextlife





    COMMENTS

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    Not Senile Yet!
    5th Dec 2015
    6:27am
    Good Advice.....Both Parties have continually changed the Suer rules and dived in to take a piece of it or penalise those that opt out by cashing it in!!!
    This has been done by stealth and there are no signs of either Political Party to stop doing this as they fail to balance their budgets!
    Super was once a great Deal as an Investment Saving for retirement....sadly it doesn't stack up anymore due to the constant changing of the rules by each elected Government....the shortcomings are now becoming obvious.....it is no longer your money to do with as you please!!!
    It is regulated by Government which keeps changing the regulation rules with Regularity!!!!
    Sadly they have a Penalty Mentality and offer nothing as a reward....every new regulation penalises....now only worth putting minimum compulsory amount and diversify your investments elsewhere if you want the final say as to when and how you will use it!!!
    MICK
    6th Dec 2015
    10:12am
    I have read that the game plan is for governments to nationalise super to get their greedy hands on a slice of the money. That will then be wasted. The normal form from our unaccountable governments...led by the current rich man's Party.
    Rae
    7th Dec 2015
    9:47am
    Investing outside super is a wise diversification. Government seems to mess with superannuation but find it harder to mess with the markets.

    No one knows how long this deflationary debt trap will last and apart from a few bank shares or scary bank hybrid bonds I can't see returns making much more than 4%. You would need a huge amount of savings to generate the income recommended for a comfortable retirement and the constant worry this brings.

    The current bond bubble must deflate at some point and that will be very nasty for investments.

    mick I think you may be right as those trillions must surely be tempting some of our more greedy masters right now.
    Not Senile Yet!
    5th Dec 2015
    6:32am
    Added note..
    Over 30 changes to the Super Regulatory Rules in less than 25years....all of them restricting not only access.....but also penalising Lump Sum Payouts unless you are Terminally Ill!!!
    Expect another 25 changes in the next 20 years as they attempt to penalise you further should you access it before the age of 70!
    MICK
    6th Dec 2015
    10:13am
    Governments have wanted to remove any lump sum withdrawal and force people to take super as a pension. I guess that was the original intention of super so maybe there should be no objection to that. It is coming.
    Bonny
    6th Dec 2015
    2:01pm
    You can't take a lump sum now they have already change that.

    But you can take out 100% of your money as a pension.

    So it is only a small change to change that 100% to a lower figure.
    Trish
    5th Dec 2015
    1:07pm
    I took a lump sum, put it into an interest-bearing account, and then realised I was liable to pay a heap of tax on the interest! Not very clever. Much better to leave it in the super fund.
    MICK
    6th Dec 2015
    10:14am
    Yes.
    MICK
    6th Dec 2015
    10:10am
    A paid advertisement. It is what it is.
    Taking a lump sum gives many Australians the ability to pay out any remaining debts and invest the rest. But Australians who did this did not know that the current government was going to stab them in the back by lowering the assets test to the ridiculously low level they did to cut people out of even a part pension. Now many are doing it tough. And as usual the rich have their own perks left untouched and are pushing to have their already low tax rates come down AGAIN.
    Bonny
    6th Dec 2015
    2:04pm
    Even if you have the new level of assets you are not doing it tough or if you are then you need to start spending your capital and not just the interest it earns.
    *Imagine*
    6th Dec 2015
    4:03pm
    Thing is Bonny you can have a 1 million dollar house and $300 000 in super and get a full pension from Jan 2017; but if you have a $500 000 dollar house a $500 000 dollar river shack and $300 000 in super, that is the exact same total wealth, you get nothing in Govt pension at that time.
    The river shack is not fluid capital that can be used as you suggest.
    I imagine that retirees in this situation who want to retain their lifestyle would consider selling both their home and the shack and buying a more expensive house by the river.
    That way they retain a part pension and their lifestyle. The whole 'system' is broken. Where is the drover's dog?
    tactful
    6th Dec 2015
    2:27pm
    Truthfully, if superannuation was paid out by the Government based on the years of fulltime and parttime work and was not less than the average weekly wage, then I think all retirees would be better off.
    Lookfar
    6th Dec 2015
    3:46pm
    A lot of people I know have planned their retirement, they are aware of major expenses so they trim to fit, using some of their super, they put Solar on their house to reduce electricity, and install energy efficient appliances, down size their car, perhaps downsize their house to reduce maintenance and then do all maintenance so that that expense will not be so likely, have a veggie garden which is all set up, well fenced, etc. perhaps get a small caravan so they can travel without big motel costs all that sort of stuff.
    Gra
    6th Dec 2015
    4:15pm
    That's what it comes down to, PLANNING your retirement. Not too many of us had jobs where we could throw a stack of money into our super and the number of years between the advent of the Compulsory Super Contribution scheme to the age of retirement has also had an impact.
    It worries me when I read about young ones talking about throwing in their job and heading off around the country or overseas. They give no thought to the future - or if they do, they don't take into account the impact not contributing to their super in these early years will have. I can't recall the exact figures but I saw a comparison chart showing what a person aged 20 would have in their super at retirement compared to someone who didn't start contributing until they were 30. The contributions and earnings in those first 10 years made an incredible difference.
    My opinion is, work hard (or smart) while you're young and reap the rewards when you get older. Better to be an aged and wiser traveller than a beat and broken worker still struggling at 70.
    Peterrj
    6th Dec 2015
    8:07pm
    Gra, I am having trouble understanding why the young need to start saving into Suoer???? At pensionable age they get free money in the form of the Aged Pension, so why do they need to save up this Cash balance in Suoer when it will be eventually free Govt cash for them???? In any case, if they save in Suoer do you really think they won't be paying tax on this money???? Super is a rort at every level!!!!
    Not Senile Yet!
    6th Dec 2015
    5:49pm
    Most simply miss the plot that has already happened!!!
    Our Leaders tell us not cash in the Super and Blow the lot before we disappear into dust....but forget that the reason why they cannot fund the Baby Boomers Pensions is because that is EXACTLY what they did with our Taxes Invested to provide same!!!
    Yes they did!!!
    In the 1990's Good Old PM Malcolm and the Opposition(labor) combined to access and SPEND the Lot on Infrastructure....Largest being the NEW PARLIAMENT HOUSE in Canberra....which we Baby Boomers Financed!!!!!
    Wonder if they could sell it off to Private Investors to rent back to them and Put the STOLEN PENSION FUND MONEY Back?????
    By the way......the Penalties vary from fund to fund as they control the Rules of Access.....Control given to them by our MP's through legislation!!!!
    Some funds will only allow Lump Sums if you can prove you are dying whilst others demand that you be unemployed for 26Wks and registered with Centrelink for that amount of time!!!!
    Totally absurd idea.....and costing all tax payers even more!!!!
    The Rules of access need to be overhauled for those who are disabled or Sick, so they can access it at time of need and do so without Penalty!!!!
    Yes we do need to leave it there if you can....but No we do also need access without Penalty when we Cannot!!!
    Lookfar
    6th Dec 2015
    6:41pm
    Infrastructure, there is a word that politicians have used incorrectly, to justify any idiocy they want, - 1st hit on Google, "the basic physical and organizational structures and facilities (e.g. buildings, roads, power supplies) needed for the operation of a society or enterprise."
    Admittedly it then gets slippery, is a big flashy comfortable Parliament house necessary to operate the Australian economy? - I would suggest not, as really it won't of itself generate any new operations to develop "organisation Australia".
    Likewise, if we replace an efficient railway system with a hugely expensive multilane highway, does that get anything more produced? or does it just make the neurosis of not having much else to do with anyone else easier, despite crippling the economy with huge import costs.
    IMHO, govt money should only be spent on something that will have a positive and provable economic return.
    That includes education and artistic development, we know we need our kids to take the next step, we know we would not be able to build tunnels without Leibniz, he invented the differential and integral calculus, so research is Infrastructure developing.
    Big subject, I just suspect politicians are not the people to decide on Infrastructure, nor the multinationals/big businesses that are going to get that work.. - Food for thought eh!
    Peterrj
    6th Dec 2015
    8:22pm
    So if you are a part Aged Pensioner and have $850,000 in Super it would not be advisable to withdraw a lump sum of $20,000 over the next few weeks??

    Yeah, right!!!!
    Rae
    8th Dec 2015
    7:58am
    That is going to make the consumer index look pretty good just before the election but then again I am cynical at the best of times.

    I suspect plenty of new cars and cruises are being sold right now.
    Lookfar
    24th Dec 2015
    4:38pm
    That thought of yours needs a bit more tucker to get it's brain cell base functioning.
    - Assuming you were replying to my comment?
    Hasbeen
    6th Dec 2015
    10:40pm
    About the only danger of withdrawing a lump sum from your super is that you might end up driving a better car, & the super management might drive a lesser car.

    I retired at 30, & went sailing around the Pacific. Put nothing into super, but boy did I have a great 10 years.

    Now I watch my more prudent acquaintances, with huge retirement money, too damn infirm to even think of doing the things I've done.

    Now I still live a great life on little money, as at 75 there is not that much I want to do. You need little, unless you actually like restaurant food, & expensive wine.
    Peterrj
    8th Dec 2015
    12:53am
    Hasbeen, you are no has been ... you should consider changing your name to BeenThereDoneThat. Not all that long ago I was sitting just outside the Savusavu Yacht Club working hard to get the Aged Pension and watching the world sailors like yourself moor their big Cats in Savusavu Bay. Later they would row ashore in their small dinghies and come in for a cold beer at sunset. Gee, they looked like they were having a great adventure. I am sure, being an old sailor, that you have a story or one hundred to tell!!!
    SuziJ
    7th Dec 2015
    8:43am
    What super? Already on pensions and there is no incentive to put funds away, if we had enough to do so.
    Peterrj
    8th Dec 2015
    12:59am
    SuziJ, you have hit the nail on the head, unless there are significant Incentives then no one would put post tax dollars into Super!
    Chris
    8th Dec 2015
    7:00pm
    Beware before considering the purchase of an income stream. Income stream providers are not Centrelink experts and neither are Centrelink staff.

    Centrelink are systematically reducing your age pension on an annual basis, using jargon like "reassessment", "recalucation of the assessable rate", and "deductible amount". I am utterly confused with these vague "guidelines" which Centrelink staff did not mention when I made enquiries when I foulishly purchase income streams two years ago.

    I have been corresponding with Centrelink for several months now to obtain full details of the relevant legislation, but to no avail.

    I strongly suggest to approach Centrelink to obtain written advice from them before purchasing an income stream.
    Peterrj
    9th Dec 2015
    1:39am
    Hi Chris, I doubt that you would really want to read the relevant legislation as that would just totally complicate the issue. I am guessing but you may have been caught by rule changes to the income test? Deeming rules apply now apply.

    Can I Suggest that you do a Google search for, "Deeming rules apply to your financial investments and help us work out your rate of payment.". You will see several Human Services references, read them and try and digest them as best you can as they may outline the answers you seek??? But you won't get an answer you desire. And don't blame Centrelink too much as they are also a victim of rule changes. No one can keep up with them!!!! And a lot more changes are on the way!!!!! I think that the legislative layman's word you seek is 'screwed'!
    Peterrj
    9th Dec 2015
    1:42am
    You could also type in 'deeming rules' in the above search function in YLC .... They may explain it better than the official site????
    Chris
    9th Dec 2015
    11:53am
    Good morning Peterrj

    Neither income stream providers nor Centrelink staff are necessarily interested in providing accurate information for the benefit of pensioners.

    What I am suggesting is that people considering the purchase of income streams should make extensive enquiries and insist on written responses. Once an income stream has been purchased it is too late for changes without suffering heavy penalties imposed by Centrelink.

    I am still hopeful that Centrelink "experts" will eventually provide the information I have requested.


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