You've probably spent much of your working life accumulating super. So, when the time comes, you might be wondering whether you’d be better off taking the money as a lump sum, income stream or both.
To help you make an informed decision, we’ve pulled together some info regarding trends in Australia, what options are on the table and some tax implications worth considering.
Super trends in Australia
In Australia, only around 16% of all super is taken in lump-sum payments, with the majority of that money used to pay off home loans, renovate, buy a new property, invest or clear other debts1.
Lump sums are more often taken by people with relatively smaller super balances. Over 90% of people with up to $10,000 and around 30% of people with between $100,000 and $200,000 in super take their money as a lump sum2.
Those with higher balances tend to move their super into income stream products, with allocated pensions (also known as account-based pensions) the most commonly used in Australia3.
Taking a lump sum
If you’re thinking about taking your super as a lump sum, consider the following:
Making your money last
A lump sum could help you to pay off your home loan or other outstanding debts, but you also need to think about what you’ll live on if you have no super left.
The Age Pension may be one option, although if you’re pinning your hopes entirely on government support, you should consider the sort of lifestyle it will fund.
June 2016 figures from the Association of Superannuation Funds of Australia show a 65-year-old couple retiring today needs an annual income of $59,160 to fund a ‘comfortable’ lifestyle in retirement, assuming both people are relatively healthy and own their home outright4.
By comparison, the maximum Age Pension rate for a couple is currently $34,382 annually5.
Possible tax implications
If you’re going to take a lump sum you should also look into tax rules—if you’re over age 60 super benefits you access will generally be tax free, but if you’re under 60, you might have to pay tax on your lump sum.
Another thing to think about is if you invest the money, depending on where you put it, you may be taxed on the interest you make, or possibly the capital gain. Whether taking your super as a lump sum is tax-effective or not, will depend on your individual circumstances.
Collecting a regular income
If you’re thinking an income stream in retirement would be more suited to your needs, an allocated pension could be a tax-effective option. Things to consider include:
Having access to your money
Typically, there is no limit to how much you can withdraw from an allocated pension. So, in addition to receiving periodic payments, you can choose to withdraw some or all of your money as a lump sum.
Each year however you’ll need to withdraw a minimum amount. This amount is calculated based on your age and will be a percentage of your account balance each year.
Possible tax implications
By moving your super money into an allocated pension, your money will not be exposed to the tax rules that apply to money held outside of super.
You will not be taxed on investment earnings within your fund
From age 60 you won’t pay tax on allocated pension payments you receive
If you’re between preservation age and age 60, the taxable portion of your allocated pension will be taxed at your marginal income tax rate, less a 15% tax offset.
Whether an allocated pension is tax effective will depend on your individual circumstances.
Investment control and earnings
Investment returns from an allocated pension are tied to movements in investment markets. And, as an allocated pension is based on the super you’ve saved, it doesn’t guarantee an income for life.
You can generally choose from a range of investment options, and an investment manager will be making the day-to-day investment decisions.
Weighing up your options
There’s a lot to weigh up when deciding how you’ll use your super. To determine what’ll work best for you, please call us on |PHONE|.
Source: AMP October 6th 2016
Source: Latest Articles