1. Taking a lump sum
Try to avoid taking a lump sum payout when you reach retirement age. Your super can continue to grow, even in retirement, by opting for an income stream payment rather than a lump sum. When you move your superannuation benefit to an account based pension account, the returns can see your investment continue to grow, thus making your retirement savings last longer.
Both your pension account and income stream income are deemed by Centrelink, so you can often still be eligible for some degree of the Age Pension, and associated benefits, when accessing your superannuation benefits via an income stream.
2. The Million Dollar Question
Whilst it is commonly believed that you need a super balance of $1 million to live a comfortable retirement, it really depends on your idea of comfort. Whether or not you are part of a couple as well as how you have structured your retirement plan will factor into whether or not that magic million super number is going to be sufficient for your needs or not. Your lifestyle choices and not your super balance should be your focus when structuring your retirement plan.
Most Australians retire on far less than one million dollars in super and manage to live comfortably and satisfied in retirement. Moving your super to an account based pension is just one of a variety of ways to make your retirement savings last longer. Making regular salary sacrifice contributions to super and the new downsizer contribution scheme may also help you boost your super balance prior to retirement and grow your savings in a tax effective manner, so take a careful look at your financial assets to see where you can make these benefits work for you. Talking to a professional and trusted financial adviser can help you structure a retirement plan that is appropriate for your needs and will work for you well into the future.
3. Can you make better returns outside of super?
Whilst this little myth may be true to some degree for a seasoned investor with the experience and time to buy and sell investments at will, most people are far better off accumulating savings within the tax effective superannuation vehicle than investing outside.
Any income your super fund makes is taxed at reduced rate (currently 15%), and if your super fund owns Australian shares, your fund will pay less than 15% tax on franked dividends. Concessional superannuation contributions (those you make before tax is taken out, such as your employer superannuation guarantee contributions and salary sacrifice contributions) are also only taxed at this 15% rate, effectively reducing your taxable income at your marginal tax rate. Your earnings outside of super are taxed at your marginal tax rate (currently between 19 and 45%, for those earnings over $18,200, depending on your total income).
You also have the choice of choosing your investments within superannuation to diversify your portfolio to suit the level of risk you are comfortable with, which can increase the effectiveness of your super’s growth potential. Coulson Financial Services team of investment and superannuation specialists can help you ensure that your retirement savings are structured in a way that suits your needs.
By Liz Corbeau DFP