A regular income for your retirement years
So you’ve put savings into your super and it’s time to retire. What happens next? Well you have a few different options for drawing an income from your savings and having an account-based pension is one of them. Here’s a quick guide to how they work and some questions to help you decide if it’s the right approach for your retirement.
When the time comes for you to retire, you’ll have access to the savings in your super fund. So what should you do with your super money? One option is to use your super to start an account-based pension.
How do account based pensions work?
With an account-based pension, your pension provider will invest your money and provide you with regular pension payments monthly, quarterly, half-yearly or annually. You’re required to withdraw a minimum amount each year depending on your age and your account-based pension will last until your balance is exhausted.
What are the benefits?
Account-based pensions can be a good way to make your investment earnings and retirement income more tax efficient. This is because:
- Your investment earnings won’t be taxed.
- You won't pay any tax on pension payments from age 60.
- From 55-59, any tax you pay on your pension income will be at your marginal tax rate less a 15% tax offset.
You also have flexibility around the money in your account-based pension. Generally, you can change the frequency of your pension payments, change the amount of your withdrawals or take a lump sum. The flexibility you have will depend on the terms of the account-based pension you choose. You may also be able to control over how your money is invested.
Are there any drawbacks?
Account-based pensions are a flexible, tax-effective way of drawing an income from your retirement savings. On the other hand, they’re not providing you with a guaranteed income for the rest of your life. That’s because neither your life span or your investment returns are certain. Your investment income will depend on market performance so your account-based pension balance won’t be growing as fast when markets underperform. There is also the possibility that you may outlive your money. Once your balance gets to zero, your pension payments will stop.
What about the Age Pension?
Whether you’ll receive Age Pension payments from Centrelink, and how much you’ll be paid depends on your eligibility. It’s worth remembering that an account-based pension is assessed when you apply for the Age Pension and may make a difference to your Age Pension entitlement.
Is an account-based pension right for me?
So there’s a lot to weigh up when you’re looking at this option for funding your retirement. To help you make the decision, it’s worth asking the following questions about your circumstances:
- How much income do you need?
- How stable is your health and family history?
- How could the payments impact estate planning?
- What are your plans for your life in retirement?
- How could financial markets, tax or Centrelink benefits influence your decision?
If you’re a member of a public sector superannuation scheme your options for accessing your super at retirement may be different and your decision can have a significant impact. A StatePlus planner can assess your individual circumstances and explain your options to you.
Need help managing your money?
Getting expert advice can make a big difference to how prepared you are for retirement - both emotionally and financially. By discussing your lifestyle goals with a StatePlus financial planner you’ll have a much better understanding of the super and income you’ll need to make retirement a positive change in your life.
For more tips and tools, download our free Retirement guide or call us on 1800 620 305