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Super pay out: Income streams trump lump sums

Super pay out: Income streams trump lump sums

New data released by the Australian Bureau of Statistics this month shows an increasing number of retirees are choosing to access their superannuation through an income stream rather than by receiving lump sum payments.

One in four people aged 65 years and over (excluding those in nursing homes and retirement villages) were reportedly receiving a superannuation income stream in 2013-14, up from one in five in 2003-04.

This amounted to almost 1.2 million people receiving an income stream from their superannuation at an average of $502 per week. 

“Of that 1.2 million, about three quarters were aged 65 years or over and one quarter were between 55 and 64 (876,000 and 307,000, respectively),” said Bjorn Jarvis, Program Manager of the ABS’ Labour and Income Branch.

While income streams seem to be the most popular choice for retirees, Mr Jarvis also said that in 2013-14, 420,000 people reported they had withdrawn a lump sum from their superannuation in the previous two years. Half were for amounts less than $25,000.

Withdrawing lump sums from your super account in retirement is one option available if you are looking to invest in your home, by renovating it or paying off your mortgage, reduce other debts or make alternate investments, depending on your personal circumstances.

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There are, however, some points to keep in mind that may help you make the decision as to whether a lump sum withdrawal is a good choice for you.

  • Tax: Retirees should keep in mind that lump sum withdrawals from superannuation, if you are under the age of 60, may be subject to tax with the tax treatment divided into a ‘taxable’ and a ‘tax-free’ component. As their names suggest, the ‘taxable’ component attracts tax, while the ‘tax-free’ component does not. The taxable component is taxed at 22% for those under age 55 and for those aged between their preservation age and 59 years, the first $195,000 is tax free with the balance taxed at 17%. For over 60s, withdrawals from super are generally tax-free. Contact your fund for more details.
  • Investing: For retirees looking to withdraw a lump sum to make an alternate investment, it is important to consider for what amount of time this investment will tie up your money. Some investments could potentially tie up your funds for a long period of time leaving you short if you need to access your cash in a hurry. Professional advice should be sought prior to making an investment decision.
  • Centrelink: For retirees that receive the aged pension through Centrelink, a lump sum withdrawal from super may affect the eligibility for you or your partner’s payments depending on its intended use. For example, a withdrawal used to pay down a mortgage may not have any affect but a withdrawal to buy a new asset, like a car, may. It is best to look at the conditions for receiving your Centrelink payment before withdrawing a lump sum from your super.
  • Discipline: When it comes to considering a lump sum withdrawal from your super account, it pays to know yourself well. Are you the type of person who can trust yourself to use the money for your advantage? Or have you been known to go on the occasional spending spree, leaving yourself high and dry when you most need cash? Asking these questions of yourself honestly before considering withdrawing a lump sum from your super is a good starting point. 
  • Longevity: A final consideration before making a lump sum withdrawal from your superannuation should be the longevity of your super. After all, this money is meant to last you the rest of your life, so decisions relating to super should be considered very carefully in terms of their future implications. It is advisable to seek professional advice specific to your circumstances when making any decisions regarding super.

Important Information

Advice contained in this article is general in nature and not specific to your particular circumstances.  Before making an investment decision you should consider your own financial situation and the relevant Product Disclosure Statement/s.  We also recommend you seek advice about your own particular circumstances from a licensed financial adviser.  Further information on superannuation can be found at: https://www.moneysmart.gov.au/superannuation-and-retirement.

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