Retirement means different things to different people, but we all have one thing in common: we need to think about securing an income. The Age Pension is a go-to option that’s available to some, but there’s another choice that works in a similar way: your super fund can provide a type of pension in the form of a retirement income stream, also known as an account-based pension. In this article, we explore how retirement income streams work and discuss what to look for when choosing a retirement income account.
How a retirement income stream works
You have the option to stay within super when you exit SASS by rolling over your money to another super fund. One of the products to consider is a retirement income account with another super fund. Here’s how it works:
- You transfer your super money to a retirement income account with a super fund
- That money is invested by the super fund on your behalf
- You choose how much regular income (subject to a minimum) you want to be paid you also have the choice of making lump sum payments over and above this.
- Your super money is progressively drawn down until it runs out
Benefits of a retirement income account
Converting your super into steady income when you retire is easy with an account-based pension and there are a number of benefits including:
- Tax-free – You won’t pay tax on:
- investment earnings,
- income payments, or
- any lump sum payments you decide to take.
- Flexible – You choose when you want to receive your payments (fortnightly, monthly, quarterly, half-yearly or yearly). You also have the flexibility to change the amount of your income payments (subject to a minimum) and to take a cash lump sum if needed – say for a holiday or home renovation or one-off medical expenses.
- Stay invested – you have the opportunity to keep growing your savings. You’ll get access to a range of investment options designed to suit your retirement needs and the level of risk that matches your life stage. You’ll have access to professional investment managers and diverse investment opportunities not typically accessible to DIY investors.
Things to know about retirement income accounts
You don’t have to formally retire to be eligible for a retirement income account.You can start a retirement income account, if you:
- are 65 or over – even if you’re still working
- reach your preservation age (ie. 60 years old) and retire, or
- are 60 or over and have changed employers or temporarily stopped working.
The Government sets an annual minimum income payment percentage of your account balance that you must withdraw each year.1 This minimum withdrawal amount is based on your age. Your income from your retirement income account is not guaranteed. How long your money lasts depends on how much you transfer into your account, how much you take in payments each year and the investment returns you receive.
Comparing your options
The table below compares some of the key features of keeping your money in the retirement phase of super versus taking your super as a lump sum.