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For many SASS members, the desire to stay in control of their money is a key factor when considering whether to take a lump sum at retirement. However, staying in the super system can give you the control you're looking for, along with a range of other benefits. In this article, we bust four myths about super and investing in retirement.

Myth #1: Super is only tax effective while you’re working

Reality: Staying in super offers significant tax advantages for retirement

You may think that once you stop working, the tax benefits of your super end too. However, the truth is that tax advantages continue if you stay in the super system for retirement:

  • Investment earnings are 100% tax-free when you convert your super into an account-based pension (a balance cap applies, $1.7 million for 2022/23 increasing to $1.9 million for 2023/24).
  • Income payments are 100% tax-free if you’re 60 or over.

Myth #2: You can achieve better investment returns outside of super

Reality: A super fund has the experience and expertise to effectively manage retirement risks

Investing your money outside of the super system might seem like a good idea, but super funds offer access to investment opportunities and a level of diversification that you probably won’t be able to achieve on your own. A super fund has the size and scale to access investment individuals can’t such as unlisted infrastructure, private equity and institutional grade opportunities.

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By staying in super for retirement you can also benefit from an investment team with the expertise, time, and resources to keep up with the markets. They vet all investments, provide expert asset allocation strategies, and regularly rebalance investment portfolios. When you consider the impact of your investment earnings through retirement it makes sense to ensure you have the most effective investment strategy available.

Around 30% of the retirement income from super could come from investment earnings through retirement. So it pays to keep your savings invested. You have the choice to change your mind at any time and withdraw your money or transfer it back into super.

  • Based on the projection of the lifecycle of a single female member who starts from age 21 and plans to retire at age 67. The projection finishes at age 95.
  • Results are stated in today’s dollars, deflated using Average Weekly Ordinary Time Earnings (AWOTE) at 4.0% p.a. for accumulation projection and using CPI at 2.5% p.a. for pension projection.
  • Contributions are based on the averages of Aware Super members for each age.
  • Investment returns for accumulation are based on the Aware Super MySuper Life Cycle option, assumed to be CPI + 4% p.a. until age 55, reducing from CPI + 4% p.a. to CPI + 2.75% p.a. between the ages 55-65 (inclusive) and CPI + 2.75% p.a. from age 65 onwards.
  • No admin fees
  • Investment returns for pension is based on the Balanced Growth option, assumed to be CPI + 3.25% p.a.
  • This example is for illustrative purposes only and is not intended to provide a forecast or guarantee on outcome. It is a broad illustration of the steps a member could take, but the actions appropriate for an individual will vary depending on their personal circumstances. The case study is based on current regulatory requirements and laws, including tax rates, which may be subject to change. Investment return assumptions are for illustrative purposes only and for simplicity assume a constant rate for each investment option each year throughout the investment period. Actual returns year on year may be negative and may vary materially. If investment returns/inflation are higher/lower, final balances will differ.
  • Source: Aware Super modelling, 22 February 2023.

Myth #3: I can avoid market volatility if I don’t invest

Reality: All investments carry some risk, but sometimes the biggest risk can be not investing at all

It’s important to recognise that all investments carry some level of risk and can go up and down over time. It’s also true that some investments, like shares, are riskier than others, which means they can change in value more, both up and down, particularly in the short term. If you put your money in the bank or in a term deposit, on the other hand, you are less likely to see big falls, but you are also less likely to see your money grow enough to keep pace with inflation either.

Keeping pace with inflation should be a key consideration for retirees. It can help maintain purchasing power during retirement and can help manage the risk that you outlive your savings. That’s why staying invested in a well-diversified portfolio can be the best option - retirees need to aim for some growth (to keep up with inflation) while at the same time not taking on too much risk to help minimise large losses if markets fall. Take a look at our case study to see how this works in practice.

If retirees stay invested in a super fund which understands what they need from their super, their investments will be managed by experts, skilled at constructing diversified portfolios of different investments with the aim of minimising risk and optimising returns over time. This can be a good way to help your savings continue to grow, but with acceptable levels of risk, throughout your retirement.

Myth #4: Staying in super is too restrictive

Reality: An account-based pension offers flexibility and easy access to your money

Staying in super doesn't mean that your money is locked away. An account-based pension offers you flexibility and easy access to your funds. You get to choose how much (subject to minimum, and, for transition to retirement accounts, maximum limits) and when you get paid each year, and you can change these amounts as many times as you like. You can choose the investment strategy for your savings. At Aware Super you have access to a range of flexible investment options designed to suit your retirement needs and the level of risk you’re comfortable with.

Importantly, you have the choice of how much of your SASS benefit to roll into your account-based pension. It doesn't have to be the total amount. For example, you may want to take a portion of your final benefit as a lump sum to pay off a mortgage or use it for a significant purchase, such as a home renovation or a once-in-a-lifetime trip.

Like all big financial decisions, choosing what to do with your super makes sense when you can think about it in the context of your lifestyle and plans for retirement. If you need help deciding what to do with your SASS benefit, an Aware Super financial planner can review your personal circumstances, talk you through each option and ultimately help you make a more informed decision.

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The information contained in this article is given in good faith and has been derived from sources believed to be reliable and accurate. No warranty as to the accuracy or completeness of this information is given and no responsibility is accepted by Aware Super Pty Ltd or its employees for any loss or damage arising from reliance on the information provided.

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