By Matthew Hoang*
SUPER in retirement
Members often ask, ‘what happens to my super when I retire?’. We know that saving and investing for the future has been a critical lesson learnt leading into retirement. It is such a core principle to building wealth, that we’re not sure what to do once it is time to start using it.
Reaching retirement age does not mark the end of the road for superannuation. In fact, it opens a new world of opportunities. It is an exciting time to spend more time with loved ones, take a long-deserved holiday, or just relax after 30-plus years of working.
Without the security of a regular salary, it is vital to understand how superannuation can provide a financial safety net during retirement years.
There are four common options to consider to help us meet our goals and objectives in retirement.
1. Do nothing / defer benefits
The easiest method. There is no legal obligation to withdraw funds from your superannuation when you retire. You may be in a situation where you wish to use your savings first or have another income stream. This means your superannuation can stay invested in your chosen investment strategy, allowing a larger amount of wealth to compound over time. When you are ready to access your superannuation it is there for you.
In addition, this will allow your personal insurance inside of superannuation to remain intact well into retirement. With Death and Total and Permanent Disability (TPD) insurance covered up until the age of 70, these benefits can still be paid out. However, with such a pivotal change in finances and lifestyle, it may be an appropriate time to review your level of cover to match your insurance needs. A full lump sum withdrawal or full rollover into an income stream will remove any existing insurance cover.
2. Lump sum withdrawal
Access to your superannuation becomes a lot more straightforward once you meet a condition of release. Your funds will be unrestricted, ready to access as a lump sum withdrawal. You can request for the full amount or partial amount of your benefits to be paid out to your bank account. You have full discretion on how you wish to spend your benefits, whether it’s to save in a secure cash account, purchase different asset classes or just fund for retirement.
Although interest rates are on the rise, it is important to remember that interest rates in savings accounts remain at an all-time low. With high inflation, your savings may not be keeping up with the cost of living, decreasing the longevity of your retirement savings.
Additionally, there may be tax on withdrawals depending on when you make a lump sum withdrawal and how much you decide to take out. It may be in your best interest to contact Active Super if there are any concerns or queries.
3. Income Stream
We’re accustomed to the periodic payments that allow us to budget for our needs in retirement. This can still exist well into retirement by structuring superannuation into an income stream.
Members can look at flexible retirement income streams. These offer retirees the flexibility to adjust the flow of their pension payment coming from superannuation, whether it is to increase/decrease payments or adjust the period of payments. Typically, it is in an invested environment where superannuation benefits are still hard at work to extend the lifespan of savings.
This can still carry market risk which leads to another option where we can see income streams providing guaranteed pension payments for a term or for life. Forgoing access to superannuation savings in one lump sum in exchange for fixed pension payments may be the solution for those who need peace of mind.
4. Mix & match
As everyone’s retirement requirements are unique, a combination of the options discussed above may be more suitable. Superannuation can form your full retirement or part of it as other variables – mortgage, investments, age pension – may come into play. By understanding the different options, you will be in a better position to make an informed decision.
Active Super’s team of financial planners is ready to assist if you seek retirement advice. Feel free to contact us on 1300 547 873 or make an appointment to see how we can help you live your best life.^
*Matthew Hoang is a Financial Planner with Active Super, offering superannuation and retirement planning advice to members in Sydney’s west and the south-west regions of NSW.
^Please note, fees may apply. Whether or not a fee applies will depend upon the scope of the financial advice you require. Your financial planner will discuss any fee payable when meeting with you and, if a fee is applicable, will advise you of the fee should you decide to proceed with obtaining the advice.
Any advice in this article is general in nature and has been issued by LGSS Pty Limited (ABN 68 078 003 497) (AFSL 383558), as Trustee for Local Government Super (ABN 28 901 371 321)(‘Active Super’). The advice does not take into account your personal objectives, financial situation or needs. Before acting on it, you should consider the appropriateness of it having regard to these matters. If you would like advice that takes into account your personal circumstances, please contact a financial adviser.