I am hoping to retire when I turn 65 (6 January 2013) however I'm not sure what to do with my super. I don't own my own home - I've been a renter ever since my husband and I divorced 19 years ago (and I got very little from the divorce settlement). I don't have much in the way of savings except for my super. I will probably have about $70,000 by the time I retire from work. I would like to know if I take that as a lump sum will I have to pay heaps of tax on it? Would it affect my getting the pension and would it, therefore, be better to put it into some kind of retirement fund instead? I was hoping to use some of my super to do some travelling before I actually have to go on a pension. However, I know next to nothing about what happens to superannuation savings upon retirement. Should I seek the advice of a financial planner or go see someone at Centrelink? I have heard something about transition to retirement but really have no idea what it entails.
Superannuation is usually the most tax-effective way you can save for your retirement, so your money is in the right place. How your money is invested in super, however is another story and will depend upon a number of factors. It must be recognised that super is not an asset class in itself, but a tax structure - something that is often lost by the media during periods of market volatility. The beauty of taking your super from the age of 60-64 is that it is tax-free, whether you take it as a lump sum or income stream. During this period your money must remain in the super system. You do however have the option of starting a ‘transition to retirement’ pension. The difference between these pensions and an income stream at retirement is that you will be limited to taking a maximum of 10% of your account balance in a year.
Once you retire or reach the age of 65 (whichever comes first) you have the option of taking your super benefits as a lump sum, an income stream or a combination of both.
starting a pension
Provided that your super fund runs ‘transition to retirement’ pensions you have the ability to convert your super to a pension.
The benefit of starting an account-based super pension (allocated pension) is that the investment earnings and capital growth on underlying assets are tax-free, compared to being taxed at up to 15% if left in the super accumulation phase.
Starting a pension now means that you’ll now be receiving tax-free income in addition to your current wage, resulting in additional money in your pocket.
As an alternative you could also increase your retirement savings if you are able to salary sacrifice the equivalent amount of your pension from your salary into super. This way, you should end up with a little more in super come retirement in January 2013, without having to reduce your income and thus standard of living.
By moving to the pension phase now, you’re investing your money in a tax-free environment and saving a little bit more of your salary into super whilst supplementing that reduced salary from your super pension! As this strategy is a little complex, it may be worthwhile exploring this option with a financial adviser.
a tax free retirement
The good news is that there’s little downside to keeping your money in the super system once you’ve retired and the pension payments you receive remain completely tax free.
You don’t necessarily have to keep your money in super to have a tax-free retirement. The income you will earn on your level of assets together with the Age Pension is likely be tax-free.So regardless of whether you have a super pension in retirement or decide to bank whatever you don’t spend on your lifestyle, you can have a tax-free retirement. It is advisable however to consider your estate planning, which is who you nominate to receive your super in the event of your death.
Although things can be complicated there are in fact many ways that you can make the most of the opportunities available to you. This is where a financial adviser can help. They’ll look at your individual circumstances and work out a strategy for you to achieve your financial goals and lifestyle aspirations. Additionally a visit to Centrelink will offer you peace of mind that your house in order.