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How you use your superannuation in retirement will depend on a number of factors, including how much super you have and whether you have any investments outside of super.
It is worthwhile taking the time to work through the options, as making the right decision could:
If you need advice for your particular circumstances, Australian Catholic Superannuation offers financial planning services that can help you.
The options for using your super in retirement include:
This option does provide you with some flexibility.
Generally, you won’t pay tax on your withdrawals if you are aged 60 or more. However, your investment earnings will be taxed at 15% within the super fund - the return you receive is after-tax.
Also bear in mind that, depending on your chosen investment option within super, to obtain cash you may need to sell your investment at an adverse time.
Depending on your income, you may have to pay tax on investment earnings and/or capital gains tax on investments outside super.
So when comparing this option with leaving the money in super; remember to compare the after-tax returns.
Investment earnings are tax-free for account based pensions and investment earnings for transition to retirement pensions are taxed up to 15%. If you are aged 60 or more, your payments are generally tax-free.
An account based (or allocated) pension is an income stream paid from your super fund.
You start by transferring your existing superannuation (to which you may have already added cash from a bank account or from the sale of investments) into a new account based pension. From 1 July 2017, there is a limit on the amount that can be transferred to an account based pension. The limit is called the transfer balance cap ($1.6m for 2017/18) and only applies to standard account based pensions, not transition to retirement pensions. This is very similar to a super account except you can’t make any more contributions once the pension account is opened. You can decide how your money is invested, and any investment earnings are applied to your account.
Within certain limits, you can also decide on the amount of pension income you wish to receive each year.
Account based pensions are not guaranteed. How long your pension will last depends on the amount you start with, how much your investment earns and how much pension you take each year.
If you have money in your account based pension when you die:
There are two types of account based pensions.
To start an account based pension you must be at least 57 years of age, or permanently incapacitated.
From 1 July 2017, there is a limit on the amount that can be transferred to an account based pension. The limit is called the transfer balance cap and only applies to standard account based pensions, not transition to retirement pensions.
If you are not fully retired and you are under the age of 65, you can take a transition to retirement pension. Once you retire or reach 65 years of age, your transition to retirement pension will convert to a standard account based pension i.e. any limits on withdrawals will cease and the investment earnings will be tax free.
You must take at least a minimum pension every year - currently 4% of your account balance is required, if you are under 65 years of age.
The minimum percentage you must take increases as you get older as shown in the following table.
The maximum amount you can withdraw from your pension account each year depends on a combination of your pension eligibility status and your choice of the Fund’s offer of two pension arrangements:
There are three main ways you can use an account based pension to transition to retirement:
This information does not take your financial circumstances into account. As these strategies are not suitable for everyone, we recommend that you seek advice from a reputable financial planner before making any decision.
Call us on 1300 658 776 to make an appointment for either of our two advice services – over-the-phone, or face-to-face – both of which take your particular circumstances into account and result in you receiving a written Statement of Advice.
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