What can I do with super in retirement? 

What can I do with super in retirement? 

The superannuation system in Australia consists of two phases:

• Accumulation phase, where super contributions are being saved and invested over our working live and
• Pension phase – this is the retirement phase when we start drawing an income to support our lifestyle expenditure.

For years our government has been working on our superannuation accumulation system, with changes often introduced to supposedly improve it. Well, some changes have been successful, others – let’s be honest, are just a way to either collect more tax or limit our benefits. And the main reason for all those changes is the fact that year after year there are more and more people retiring than entering the work force.

But in all, our superannuation system is relatively established, and we can now say well matured. This cannot be said however, about the pension phase and that’s exactly why the Retirement Income Review has been set up to fully understand people’s behaviour with money in retirement and what policies could be recommended to ensure high quality of retirement can be achieved by most retirees.

Upon the review, it was found that most retirees believe that they should only draw the earnings or interest from their superannuation savings, with the full and un-touched capital to be passed on to the next generation.

However, the superannuation system is not designed as a tax-efficient way to pass on those savings to your beneficiaries. The system has been built so in retirement those superannuation savings will support your living needs therefore, it is expected that you will spend majority of your super in pension phase and not give those savings to your children.

Therefore, our today’s question is:

What can I do with my superannuation savings once I retire? What are my options?

This is a question that I have notices gets listed often in the comments of some of the videos as well as I get asked during my personal meetings with new clients. So obviously this is not as clear as maybe it should be.

So first let’s start with the preliminary question: When can I access my super?

The general rules to access super are as follows:

1. Turning age of 65, even if you continue working
2. Reaching preservation age and retiring
3. Reaching preservation age and commencing a Transition to Retirement if you continue working.

I have already prepared lots of information on those exact subjects:  

• When can I access my super please?
• Superannuation preservation age and rules
• Can I access super and continue working? – TTR explained

Assuming you have retired, what choices do you have with your superannuation savings?

1.Commence retirement income stream – there are so many videos on my channel on a retirement income stream topic, I am unable to list them all, so feel free to search around or read more information on my website AboutRetirement.com.au As you can see through most of my videos, I am a strong believer that one income stream is not the best way to set up your retirement. That obviously depends on the overall value of your investable assets, and whether Age Pension is even a consideration in your situation. If it is, the correct design of your income and split between different income streams can provide quite a substantial difference in the level of income and security of it every single year for the remainder of your retirement.

2.Withdraw a lump sum – once you meet conditions of release, your super is your money, and you can withdraw any part of it in a form of a lump sum. It can be a partial or a full withdrawal. Generally, I do not recommend withdrawal from the super, just to have money in a bank account. After all, once your super savings have been moved to a pension phase, they are not subject to any tax, no income tax, no capital gains tax. If instead, you invest funds directly on your name, all the profit and interest are subject to your personal income tax.

But sometimes there are reasons to make a partial withdrawal such as:

• Paying off the mortgage
• Home upgrades
• Retirement preparation, such as a new car to have a reliable vehicle for the rest of your retirement, or a holiday

But please plan properly, so you don’t waste your money in short term, only to have no security savings in later retirement years. This is exactly what I am showing as a situation comparison in my last article: 

Should I spend my money to have full Age Pension?

3.Keep savings in super – sometimes people think that on retirement they must move their super to an income stream. No, you do not, you can keep all or part of your savings in super. I am not sure what would be a reason, apart from having in superannuation more than the transfer cap, which is currently $1.9mil. This is the maximum you can currently move to a retirement pension. Therefore, if you super balance is greater than $1.9mil, the rest would need to remain in the superannuation account, and unfortunately be subject to 15% tax, unlike the rest in the pension account. If this is your situation, I am certain you realise the value of a good professional advice for your retirement.

4.Combine the above options in any proportion that suit you-  again I repeat, there is no rule that says you have to start an income stream, just because you retired, but remember that a good, solid and reliable retirement planning takes into consideration all possible aspects of what could happen in the future, together with unforeseen circumstances. This is why you need to organise your savings with the view of the following:

1. sufficient income,
2. funds longevity,
3. financial flexibility,
4. tax-effectiveness,
5. access to government benefits where possible,
6. investment risk,
7. estate planning.

Often this is easier said than done, and that’s why a professional advice with a retirement specialist is essential. If this is your situation, just organise a meeting for us through my website.

By:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement