When it comes to funding your retirement, the decision you make on how to access your superannuation savings is probably the most important one you face. It could be the difference between having enough money to last you throughout retirement or running out after a few years.
While a lump sum withdrawal may seem attractive, especially after years of working hard and saving for retirement, unless you have a strategy for managing your super savings in a manner that will deliver growth, your money may not last long enough.
It may seem reasonable to assume that when and if your money runs out, you will simply be able to claim a Government Age Pension. However, there is a risk that changing legislation may mean that you won’t qualify or receive enough to live on when your time to claim arrives.
The option of taking a regular income from an account-based pension is one that many retirees are now considering. Not only can your superannuation savings continue to grow through investment, if you structure your finances correctly, you may also be able to receive a Government part Age Pension.
So, how do retirement income accounts (account-based pensions) work?
When you are able to access your superannuation (when you reach preservation age and fully retire), you transfer some or all of your super fund balance to a retirement income account.
You can then choose your regular payment amount and how frequently you wish to receive it (minimum limits apply). You can also withdraw lump sums if you need a little more money for unexpected bills, or perhaps a holiday.
The balance in your account will decrease as the payments are deducted. Lump sum withdrawals, fees and negative returns will also reduce your balance; however, the money that remains in the account will continue to be invested and any positive investment performance will see your balance increase.
What are some of the best features of a retirement income account?
Retirement income accounts vary depending on the fund with which you choose to open your account. It’s important to choose an account that is best suited to your retirement and financial needs. Retirement income accounts enable you to:
- have the chance to pay less tax
- have unrestricted access to your account to make lump sum withdrawals when required*
- continue to have your super savings invested
- choose the income you wish to receive and how often
- nominate who gets the money that remains in your account when you die
- commence a transition to retirement strategy if you wish to remain working.
How long will the money in my retirement income account last?
This depends on a few factors:
- how much is in the account to begin with
- how much you withdraw and at what intervals
- how much your balance is reduced by fees
- how much growth comes from investment returns.
What if I’m combining money from several super accounts or investments?
It may be beneficial to consolidate all of your super funds and investments into one super account before you open a retirement income account.
Depending on how much you have to transfer, you may wish to consider moving some of your investments that currently sit outside superannuation over a period of a few years to ensure you do not breach any concessional or non-concessional caps and limits that apply.
AustralianSuper are one super fund who offer a retirement income product. For information on AustralianSuper’s Choice Income, visit australiansuper.com
*Limits and fees may apply
This article has been sponsored by AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788, Trustee of AustralianSuper ABN 65 714 394 898. The views expressed are those of YourLifeChoices and not AustralianSuper. For more information about AustralianSuper, please visit australiansuper.com