You’ve worked hard, saved and invested—now it’s time to use those funds you’ve built up in a way that will make your retirement worth it.
Here’s how to use your super and government benefits to achieve a comfortable retirement, so you can enjoy that money you worked so hard to save.
How to withdraw from your super
At age 60 or 65, you’ll be able to access the funds in your super. You have a few options as to how you can take out the money:
- As a lump sum: once you reach retirement age, you can take all the money in your super out in one tax-free lump sum.
- As an income stream: alternately, you can transfer some of the money into another type of account and receive a fixed amount on a regular basis, such as monthly or fortnightly. This is generally tax-free as well.
- As a lump sum and an income stream: you can take out a lump sum when you retire, then transfer the rest into another type of account and convert it to income.
Because you need the money in your super to last throughout your whole retired life, it’s usually best to take it out as an income stream. To do this, you’ll simply fill out a form stating that you want to transfer the money to a “pension phase account” and specify how much to transfer, what percentage you’d like to receive as income and how often.
Based on your age, there’s a minimum amount you’re required to withdraw, but because money in your super is tax-free, there’s also a maximum amount you can transfer at a time ($1.7 million).
Which income stream to choose
Many people transfer money from their super into an account-based pension, but that’s not the only option. Some of the most common financial vehicles for retirement income include:
- Account-based pension
This is a flexible account that provides tax-effective income from your super but also allows you to withdraw lump sums when you want to. Earnings are tax-free, and if you’re over age 60, so is all income you receive from this account. There is a minimum amount you can withdraw in income each year, but no maximum.
- Annuity
This is a fixed term or lifetime income stream. In other words, it provides you with a guaranteed income for a specified length of time. You can also get a deferred lifetime annuity, which starts paying you at the age of your choice and stops when you die. When you put money into an annuity, it’s inaccessible for a set period of time, during which you cannot withdraw lump sums (though you will receive income as outlined in your agreement).
- Insurance bond
This is a special type of savings vehicle with a set tax rate of 40%. You can withdraw the money whenever you want, but if you keep it in the account for at least 10 years before withdrawing it, any capital growth is tax free. Some people prefer using an insurance bond in place of or in addition to a super.
As you make a decision, you may want to consider the following:
- How long are you willing to wait before accessing your funds?
- Do you have any large expenses for which you’d need a lump sum?
- Which products will save you the most on taxes?
- Will any of these products be transferred to your beneficiaries as part of your estate?
- Do you need access to a wide range of investment options?
- How much are you willing to pay in fees and charges?
When it comes to which product is best, there’s no right or wrong answer. Rather, it depends on your individual retirement plan and financial circumstances.
Another source of income: the age pension
The government offers an age pension to people who:
- Are at least 67 years old
- Are residents of Australia and have lived in the country for 10 or more years
- Meet certain income and asset requirements
The income and asset requirements refer to how much income you receive (including from work, pensions, annuities and investments) and how valuable your assets (including vehicles, boats, investment properties and business assets) are. If your income and/or assets are above a certain amount, you may qualify for a reduced pension payment, or for none at all.
A single retiree can have an income of up to $204 per fortnight and still receive the entire age pension. If they have an income of more than that, their pension will be reduced by 50 cents for every dollar above $204, with a cut-off point of $2,397.40. For a couple, the limit is $360, and anything above that is reduced by 25 cents per dollar, with a cut-off point of $3,666.80.
In terms of assets, the limit for a single person is $301,750 if they own their own home and $543,750 if they are renting their home. For couples, those rates are $451,500 and $693,500.
The maximum age pension amount is $26,065 per year for a single retiree or $39,296.40 a year for a couple.
It’s possible that you could qualify for the age pension even if you have a super, but it depends on how much you have in your super along with the amount of your other money and assets. Over time as you withdraw from your super, you may become eligible for the age pension, since your assets (including the funds in your super) will decrease.
Other government benefits
The government also offers other benefits for retirees, which you may qualify for if you meet certain requirements.
Concession Cards
You may be eligible for certain cards that provide discounts on things like utilities, health care, and public transportation. To qualify, you generally have to be age 60 or older, be eligible for the Age Pension and/or work fewer than 20 hours per week.
These cards include:
- Pensioner concession card, which gives discounts on utilities, medical bills and public transportation
- Seniors cards, which give discounts on public transportation as well as certain services and goods
- Commonwealth seniors health card, which gives you discounts on medical appointments and prescriptions
Health care benefits
There are also a number of health care benefits you may qualify for as a retiree. These include:
- Medicare Safety Net, which reduces your out-of-pocket medical expenses after a certain threshold
- PBS Safety Net, which helps you pay for medicine after you’ve already paid a certain amount
- Free vaccinations, cancer screenings and health assessments
Tax offsets
Depending on your age, income and eligibility for government pensions, you may also qualify for the Seniors and Pensioners Tax Offset (SAPTO).
Case study: Judith
Judith makes $70,000 per year before tax. Her take-home pay is around $52,000 per year.
She pays off her mortgage before retirement, and by the time she retires, her children are out of the house, so she can cut her expenses back by about $4,000 per year.
That said, she wants to keep her current lifestyle, which means she’ll need an annual income of $33,000 per year.
She has $600,000 in her super, but she’ll also qualify for a reduced age pension of $15,000 a year, which means she only needs to withdraw $18,000 from her super fund annually.
She transfers the money from her super into an account-based pension and sets it up to pay her $1,500 per month. On top of that, she’ll receive $1,250 a month through her age pension, which means she’ll get a total of $2,750 per month.
Under this plan, the money from her super will last her until age 95, and she has a buffer of $60,000 in case she lives a little longer, has unexpected medical expenses, or wants to leave money for her beneficiaries.
