As you begin to think about and plan for retirement, it’s important to think about how much super you’re going to need, and how you’re going to access it. Choosing when and how you access your super in retirement is a really important decision, and everyone is different.

If you have reached your preservation age, you can begin accessing your super. Find your preservation age:

Date of birthPreservation age
Before 1 July 196055
1 July 1960 - 30 June 196156
1 July 1961 - 30 June 196257
1 July 1962 - 30 June 196358
1 July 1963 - 30 June 196459
After 30 June 196460

Date of birth

Once you’ve made the decision to start accessing your super, you need a budget. Bills don’t stop in retirement, but the income might unless you take control of your financial situation. By making good choices now you can put yourself in the best possible financial position for your retirement.

Making a retirement budget can stop you from spending too much too soon, leaving you short for the things you want to do.udgeting is simply comparing your income to your expenses.

When looking at your expenses think about:

  • Will there be any one-off expenses? You might want to reduce your debts by paying out your home loan or credit cards.
  • Will you still have dependants to support? Will you need to support any children or elderly parents.
  • What type of lifestyle do you want in retirement? Will it be modest or comfortable?
  • Will you have ongoing healthcare costs? Will these need to be factored in?

Where will the money come from?

You may find that getting an income in retirement is very different to the ‘earning a wage’ lifestyle that you’ve been used to. But with a little planning there are a number of ways to get a retirement income that will satisfy your situation.

Social security

Around 65%1 of older Australians rely on a government pension as their main source of income in retirement. A home-owning couple can own assets up to $860,0002 (not including their home) and still receive a partial Age Pension.

Centrelink has an online Rate Estimator where you can find out how much Age Pension or other payments you could potentially be eligible for.

Even if you don’t quality for a full pension there are other benefits you may be able to access, like the Pensioner Concession card and the Commonwealth Seniors Health Card, which offer discounts for things like:

  • cheaper prescription medicines
  • Australian government-funded medical services
  • other government concessions
  • health concessions
  • reduced cost of some goods and services

If you can obtain concessions on day-to-day living expenses, you’re helping to balance your budget with reduced spending.

Visit the Department of Human Services – Older Australians website for more information.

Accessing your home equity

Some people will choose to use their biggest asset – the family home – to add to their retirement income.

Here are some ideas for accessing the equity in your home:

  1. Convert your home to dual occupancy so you can rent or sell the other half
  2. Rent out rooms
  3. Top up your home loan or redraw funds if you still have a home loan

Be careful to think about your financial circumstances as a whole. You may want to talk to a financial adviser who can help you find out if there will be any issues with social security payments, or any estate planning or tax implications.

Remember, the aim is to access enough income to meet your retirement needs.

Part-time employment

It’s hard for many people to go from years of full-time work to all of a sudden being fully retired.

Choosing to cut back on hours and work part-time can be a great way to ease into retirement and keep the income flowing, and it gives everyone in the household a chance to adjust and create a new routine.

Depending on your particular circumstances, starting a Transition to Retirement (TTR) pension at the same time as reducing your hours could mean you end up with the same take home pay as when you were working full-time. This means you don’t have to compromise your standard of living.

And while you continue to work, you’ll be entitled to Superannuation Guarantee contributions as they have to be made for all eligible employees, regardless of their age.

You may have heard of changes to TTR rules that started 1 July 2017. Earnings in an account supporting a TTR pension are now taxed at 15%. But if you’re over 60, your pension payments will still be tax free. TTR may still be a tax effective option for you.

ASIC’s MoneySmart has information about part-time employment, and TTR pensions.

Accessing your super in retirement

Regular income

You don’t have to remove your money from super just because you’re retiring. You can pay yourself a ‘wage’ by choosing an income stream such as an account-based pension or annuity. The only catch is that the government sets minimum amounts that must be withdrawn each year.

Retirement income streams let you turn your super or other investments and savings into regular income payments: they provide a regular source of income to fund your retirement.

If you are under 60, you need to pay tax on most retirement income streams, providing you with the familiar ‘take-home pay’ concept. Retirement income streams can be paid for a lifetime, for a fixed term, or while there is a positive balance in your account.

The advantages of having an income stream will depend on your personal circumstances – it’s regular income to meet your living expenses, and some people like to have this certainty to better plan their spending.

One of the key advantages of an income stream is that regular payments can present less of a money management challenge than being confronted with a large lump sum payment. For most of us, this may be the largest sum of money we’ve ever had to deal with, and making choices about how to manage it may be daunting.

Lump sum

Taking a lump sum can allow you to make big, early-retirement purchases such as a new car, renovations, and travel, or it can be used to pay down debt.

Remember that although a lump sum can be used to create an income stream outside super, this effectively moves your funds out of the tax-advantaged super environment.

Or...you can do both

Many retirees take a lump sum to meet big expenses and arrange an income stream with the balance to get the tax advantages and provide a regular income over the longer term.

The two main structures of retirement income streams

Pensions

Pensions are only available from super funds and can only be purchased with super money (that is, money paid out from a super fund or retirement savings account). Pensions are governed by a trust deed.

Annuities

Annuities, also known as ‘other money’ in retirement, are paid from life companies or friendly societies and are governed by the policy document (contract of insurance) signed at the start of the income stream.

The different types of pensions

There are two main types of retirement income streams available in the market today: account-based pensions and non account-based pensions.

1. Account-based pensions

Account-based income streams can only be purchased using super money. They offer a fair degree of flexibility as you can select your own investment profile, if member investment choice is offered. However, you bear the investment and mortality risk – the risk that you run out of money before you die.

Payments from the income stream can be made fortnightly, monthly, quarterly, half-yearly, or annually, and can be varied at any time. Lump sums can also be withdrawn at any time.

An account-based income stream can start before retirement if a person has reached their preservation age. This is known as a Transition to Retirement (TTR) pension, which comes with its own rules. Lump sums cannot be withdrawn from a TTR pension, and the maximum draw down allowed each year is 10% of your account balance.

Payments from an account-based income stream are made up of the original amount invested, plus or minus earnings, minus fees, taxes, and other charges.

Minimum annual payments

There’s a minimum annual payment that you must take from an account-based income stream, but there’s no maximum annual payment, unless being paid under a Transition to Retirement arrangement (when the maximum is 10%). The minimum annual payment for account-based income streams is based on the pension account balance multiplied by the relevant minimum percentage factor.

Age of beneficiaryMinimum % factor for 2019/20
55-644%
65-745%
75-796%
80-847%
85-899%
90-9411%
95+14%

Age of beneficiary

If an account-based income stream commences after July 1 in a financial year, the minimum total annual payment for that period can be reduced in proportion to the number of days remaining in the financial year.

If an account-based income stream commences after 31 May in a financial year, there’s no minimum payment required for the remainder of that financial year. It’s therefore possible to delay the first payment until the following financial year.

On 1 July 2017 a cap was put on the amount of money that can be transferred to a tax-free account-based pension. This limit is known as the ‘transfer balance cap’ and was initially set at $1.6 million

Case study: Susan

Susan is 61. On 1 July, Susan has a pension balance of $167,000. The minimum percentage for a 61 year old according to the table is 4%.

This means the minimum amount Susan has to take in that financial year is $167,000 x 4% = $6,680.

As this isn’t a TTR pension, there’s no maximum pension payment limit. Susan could take more than $6,680 if she wanted to.

2. Non account-based pensions

Non account-based pensions and annuities are designed to cover retirees’ longevity risk in the most efficient way. However, the income provided at any time is likely to be fixed on a pre-determined basis.

Examples of non account-based pensions and annuities include:

 

Lifetime pensions and annuities

Lifetime pensions provide income payments for your lifetime, and for the lifetime of reversionary beneficiaries (if any). A reversionary beneficiary is someone the retirement income stream will continue to be paid to following the death of the original purchaser.

Major points to note:

  • investment choice is not relevant because the income is fixed at commencement
  • the income stream can be set up to continue to pay beneficiaries after your death
  • the option of a guaranteed period is available
  • these types of products come with certain restrictions and cost implications
Life expectancy pensions and annuities

Major points to note:

  • the pension or annuity provides income payments fixed for a term that’s based on your life expectancy
  • investment choice is not relevant because the income is fixed for a term
  • you can choose to have part of your initial investment repaid to you at the end of the term – this is called residual capital value
  • you can choose a reversionary beneficiary, which means that if your beneficiary has a longer life expectancy tan you, you can choose to have your income paid to them after you die
  • these types of products come with certain restrictions and cost implications
Fixed-term pensions and annuities

Major points to note:

  • fixed-term pensions and annuities provide income payments for a fixed term (usually between 1 and 25 years)
  • investment choice is not relevant as income is fixed at commencement and is indexed annually
  • you can choose to have part of your initial investment repaid to you at the end of the term
  • income payments can continue to be made to your beneficiaries after you die, by setting the income stream up on a reversionary basis
  • these types of products come with certain restrictions and cost implications

All of these can be purchased from a super fund using super money, or from a life insurance company using either super money or other savings.

Your options

There are various features and options available to suit your circumstances. These include:

Guaranteed payment

The guaranteed period or term that the provider will pay the pension or annuity even though the recipient may have passed away.

Capital protection

This means a lump sum payment can be paid to the estate or nominated beneficiary, less charges and payments made to the recipient.

Indexation

Allows the income stream to be increased over time to keep up with inflation.

Payment frequency

The recipient can elect the frequency of their income payments.

Residual Capital Value (RCV)

A capital amount payable at the end of the contract term which can be the end of a period of time or on the death of the recipient (for a lifetime product). The RCV amount is nominated at the beginning of the contract and can be any amount of the initial purchase price.

Reversionary percentage

The amount which will be paid to the reversionary pensioner or annuitant upon the death of the original purchaser. This amount is usually expressed as a percentage of the original payment.

How income streams are taxed

Super benefits paid from a taxed source (including a super fund) as a lump sum or income stream are generally tax-free when paid to people aged 60 or over. You can learn more about tax on super via ASIC’s MoneySmart.

Don't forget your other income sources...

Shares

If you receive dividends and franking credits, you’re adding to your retirement income and getting a tax break

Investment property

A property can provide rental income

Cash and fixed income investments

You’ll receive interest on these periodically

Managed funds

You may receive income in the form of distributions from pooled investments

Other info you might be interested in

How to access super in retirement

It’s important to think about how far your super will stretch, and whether it will be able to provide you the lifestyle you want

Transition to retirement

Transition to retirement – also known as TTR – was introduced to help people ease into retirement.

The role of financial planning

Good financial advice can help you set goals and make confident and informed financial decisions, now and in the future.

Learning Hub

Understand your super and the simple steps you can take to stay in control.

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If you want to learn more or need help with making a decision about your super, you can get simple advice over the phone or face to face. It’s included as a part of your membership so there’s no extra cost.