During your working life you receive regular income in the form of a salary or business income. In retirement, this regular income stops, so you need to draw on your savings to meet your lifestyle costs. You set up your savings so you still receive regular payments, just like a salary. This is called a ‘retirement income stream’.
The type of income stream you can start at retirement depends on whether your savings are inside or outside of super.
Payment of your superannuation savings in regular periodic amounts is called an ‘account-based pension’ or ‘allocated pension’. An account-based pension starts when you transfer your superannuation savings into a new account, called a pension account, and start to draw down on the money in a series of regular payments.
You can elect how much income you want to receive (above the specified minimum) and can continue to receive a regular income until all of your super savings are exhausted, or you pass away. If you die, the balance of your savings is paid to your nominated beneficiary or to your estate.
How are your income and savings taxed?
If you are a member of a taxed super fund and
age 60 and over, all the income from your pension account is tax-free if you are a member of a taxed super fund. If you are under the age of 60, a portion of your income may be tax-free.
Any amount that is taxable attracts a 15 per cent tax offset. Investment earnings and capital growth on your pension account are not taxed once you start your pension.
Will you have enough?
Each year, Australians are living longer due to improvements in medicine and changes in lifestyle.
There is a one-in-two chance that one member of a couple age 60 today will live to age 90. So even if you
plan your retirement income strategy using today’s
average life expectancy, there is a good chance you’ll
live beyond this age.
Guaranteed income, for life
A new generation of products has been developed to provide you with a secure income during your
retirement, every year for the rest of your life.
Some of the guarantees are designed so that they
continue to pay you an income even if your own
savings run out, and – if you choose – it will continue
to pay this income to your spouse even after you die.
We can help you determine whether this type
of product is right for your needs.
An annuity is the exchange of a portion of your savings for a series of regular fixed payments.
Annuities can be purchased with superannuation
savings, or money outside of super.
There are three main types of annuities:
A fixed-term annuity pays you a regular income for a set number of years.
Life expectancy annuity pays you regular income fixed for a term that is based on your life expectancy.
Lifetime annuity pays you a regular income for the remainder of your life.
You can purchase these types of income streams
individually or jointly. If you choose to start the annuity
jointly with another person, you can only use money
outside of super to do so. Your income remains the
same each year unless you include an option called
Indexation allows you to increase your annual payments based on a set percentage, such as 5 per cent per year or the Consumer Price Index (CPI).
How is your annuity taxed?
Your income is taxed based on whether you buy the annuity with super money or non-super money.
For super money, if you are over the age of 60, all of the income is tax-free. If you are under the age of 60, a portion of your income may be tax-free.
Any amount that is taxable attracts a 15 per cent tax offset. Once you purchase your income stream, you pay no tax on the lump sum you invest.
When can you access your super?
Generally, you can only access your super when you meet a condition of release, such as:
you permanently retire from the workforce and reach a minimum age set by law, called your 'preservation age', age 60, or
you cease an employment arrangement on or after you reach age 65.
Depending on your circumstances, other conditions
of release may apply.
Once you have satisfied a condition of release, you
have a number of options:
withdrawing your superannuation in full or in part
leaving your superannuation as it is, or
starting an income stream.
Each of these options will have different consequences for your situation, such as the amount of tax you will pay and how long your money will last.