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