Understanding the basics: What you need to know about using your super

Part 2: This is the second column in our five-part-series ‘Road to Retirement’ designed to help you plan for the future and be retire-ready
Understand the basics of moving from saving for retirement to spending.

Understand the basics of moving from saving for retirement to spending. Photo: Getty

You may have seen articles about moving from the accumulation to de-cumulation phase of superannuation.

The process is not as complicated as it sounds. It simply means that you have reached the age when you can access your super savings.

Here’s a straight-forward explanation of what happens when you reach this stage and ways you can maximise your earnings as you start to use your savings.

Remember, the majority of Australians will receive an age pension from 67 onwards and super will be used as a top up to this payment.

What happens at Preservation Age?

Preservation Age is the term used to describe the time and circumstances that allow you access to your super.

Up until now you could only access your super savings in times of extreme disadvantage or as a one-off during the pandemic. That all changes for most people when they turn 60.

Provided all other conditions are met, they can then withdraw savings in one or more lump sums. Or they can move some or all of the funds into a retirement income stream.

Many people choose to do both, i.e. to take a small amount in a lump sum and put a more substantial amount into an Account-Based Pension (ABP) or an annuity.

Any balance can remain in the original accumulation account for as long as the retiree wishes. Remember that this money will continue to grow as it did before you retired.

ISA Road to Retirement

What happens when you can finally access your super savings explained. Photo: Getty

How do Account-Based Pensions (or Income Streams) work?

These are the most common way in which retirees ‘pay’ themselves.

Your Industry SuperFund will be able to offer a regular income through an Account-Based Pension when you reach Preservation Age.

The names of the accounts may vary from one fund to the next, but they offer a structure that allows your money to keep earning returns while you draw down a regular retirement ‘salary’.

Account-Based Pensions are flexible as you can nominate payment amounts, provided they are above the designated minimum amount.

Your money is now in a more tax-effective environment and you can still access lump sums as needed.

Lump sum withdrawals

For varying reasons, some people will wish to access money in a lump sum when they reach Preservation Age.

This could be to pay down debt, help family members, or to buy or renovate property.

No one can tell you what to do with your super. But there are many implications on other types of retirement income when withdrawing a lump sum.

For instance, you can significantly affect your ultimate age pension entitlement and taxation if lump sums are used on assets that are not exempt.

Discussing your needs with an Industry SuperFund adviser can help you avoid such unexpected consequences.

ISA Road to Retirement

Even with your superannuation, you may be eligible for the age pension. Photo: Getty

Will you get an age pension?

The three main requirements for age pension eligibility are your age (67 plus), residency and whether you pass both the income and assets test.

There are different income and asset limits for a part age pension or a full entitlement (which, including supplements, currently pays $28,514 per annum for singles and $42,988 combined for couples).

Even if you are five or 10 years younger than age pension age, it’s important to understand your potential eligibility.

The decisions you make over the next few years can reduce your pension entitlement without you even knowing why.

For instance, if you give money to someone else, you may think you have lowered your assets. But Centrelink assesses this money for up to five years, including money you gifted before you turned 67.

Discussing this likely eligibility with an adviser at your fund is the next step.

This will help you to understand how your super can be used to supplement the age pension, while still delivering strong returns along the way.

Stick with your Industry SuperFund in retirement and your money could go further. Visit today.

Read more of the Road to Retirement series
Part 1: It’s time to take control of your super

This content is sponsored by Industry Super Australia.

This information provided in this article is of a general nature only and does not constitute financial or business advice. It is important to consider personal objectives, financial situations or particular needs when making financial decisions. 

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