How will you use your super?

March 14th 2024 | Categories: Retirement |

One big lump sum can look appealing to some, and daunting to others. 

For most of our working lives, we spend decades contributing and watching our super balances grow – imagining where and when the money will take us. Data collected in 2023 revealed that Australians invested almost 151 billion dollars into super, an increase from 11.3%. With retirement on the horizon and so much to consider, it can be overwhelming or downright confusing to work out how best to make your super work for you.  

Easy does it  

You can remain employed while receiving regular payments from your super when you have reached your super preservation age (depending on your date of birth) and are under the age of 65. 

Using a transition-to-retirement income stream allows you to reduce your working hours while maintaining your income. To take advantage of this option, you must draw between a minimum of 4% and a maximum of 10% of your super account balance each financial year. 

A transition-to-retirement strategy is not for everyone, and the rules can be complex. We would encourage you to discuss this option with your financial adviser before committing to ensure this is the best path forward for you.  

The good: 

• Allows you to ease into retirement by working less but receiving the same income, using the transition-to-retirement income stream to top up your salary. 
• If there is spare cash each week or month, you can make extra contributions to boost your super. Hot tip: salary sacrifice. 
• The tax benefits. If you are above the age of 60, the transition-to-retirement pension payments are tax-free (although the earnings in the fund will continue to be taxed as per superannuation). 

Consider:  

• Withdrawing money from your super reduces the amount you have later for when you officially retire. 
• Centrelink entitlements may be affected  

Taking a retirement pension 

An allocated pension serves as a typical retirement income stream., offering flexible funds as you settle into and enjoy a new life without work. Changes to lift the lifetime limit – known as the transfer balance cap, were introduced at the beginning of the new financial year. These include: 

• The maximum amount of capital that can be transferred to your super pension increases to $1.9 million from 1 July 2023. 
• The cap is indexed and began at $1.6 million (when it was introduced in 2017).  
• Increases in the cap are tied to CPI movements. 

The good: 

• While there is a minimum amount you must withdraw each year, there is no maximum. 
• Flexibility on payment cycle – you can receive pension payments weekly, fortnightly, monthly or even annually. 
• You can still choose to return to work and it won’t affect the income stream you have already commenced. 
• Tax-free earnings and withdrawals (regular payment or lump sum).  

Consider: 

• The account-based pension may affect your Centrelink entitlements 
• There is a longevity risk that the amount in your super to draw on might not last as long as you do 
• The amount you can use for your pension is limited by the transfer balance cap. 
• Investment risk and how your funds are invested 

Withdrawing a lump sum 

Once you have met the working and age rules, you may opt to take your super as a lump sum or a combination of pension and lump sum payments. 

The good:  

• The chance to pay off any debts to help relieve any financial stress. 
• Opportunities to invest outside super (for example, property). 
• Pay little or no tax if you are 60 and older. 

Consider:  

• If you are using the lump sum to invest, you may pay more tax 
• Reducing your super balance now means less for later – spend wisely. 
• Future liquidity and managing cashflow 

Access to SMSF funds 

There are several additional issues to consider for those with self-managed super funds (SMSFs). For example, you will need to carefully check your Trust Deed for any rules or restrictions for accessing your super and consider how your fund can meet pension requirements if it holds large assets that are not cash, such as a property. It essential to consult a financial planner to understand your circumstances. 

Deciding what to do with your super doesn’t have to be a daunting task. With Invest Blue, your trusted financial adviser is there to support you no matter your circumstances. We’ll help come up with a solution that helps empower you to live your best possible life.

You may also be interested in our articles:

• Ask an Adviser – What to do if you receive a lump sum of money?
• 5 tips to help talk about generational wealth with adult children
• How to boost your super with a lump sum
• Who needs a testamentary trust?

If you want to discuss your options, call us on 1300 346 837 or contact us below.  

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What you need to knowThis information is provided by Invest Blue Pty Ltd. (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice regarding those matters and seek personal financial, tax and/or legal advice before acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relation to products and services provided to you.