Superannuation: Moving towards retirement
How much will you need?
The Westpac-ASFA Retirement Standard for the March quarter of 2009 says that to have a modest retirement lifestyle that is a little better than the Age Pension, but very basic, a couple needs an annual income of $27,550 and a single person needs an annual income of $19,530 (the calculations take entitlement to the Age Pension into account and are rounded to the nearest $10).
To have a comfortable retirement lifestyle which includes some travel, private health insurance and a reasonable car substantially more private savings are required. A couple needs an annual income of $50,770 and a single person needs an annual income of $37,820 for a comfortable lifestyle. Contact ASFA to check their latest quarterly data.
Will my retirement benefit last the distance?
Because Australians are living longer their super savings have to support them for longer. To get an approximate idea of how much you'll need as a lump sum in order to get a modest or comfortable retirement, the Westpac-ASFA Retirement Standard figures have been converted into lump sums for retirees aged 65 who will live to an average life expectancy of about age 85. (Life expectancy for a 65 year old is currently 86.2 years for women and 82.7 years for men: more about life expectancy).
| Couple | Annual costs/ after-tax income | Lump sum needed |
| Modest | $27,550 | $360,000 |
| Comfortable | $50,770 | $660,000 |
| Single | Annual costs/ after-tax income | Lump sum needed |
| Modest | $19,530 | $255,000 |
| Comfortable | $37,820 | $490,000 |
Source: Calculations based on estimates provided by the Association of Superannuation Funds of Australia, July 2009. Note that the lump sum figures are based on an assumed rate of return of 4.5% above inflation. These figures do not take into account any age pension entitlements because these vary from person to person. Most retirees are entitled to some age pension however and so you may not need as large a lump sum as is outlined above.
See Building your super, page 30 for strategies on how to build your super balance.
One way to make your super savings last longer is to defer your retirement from the workforce. This will increase your superannuation savings and delay the need to start drawing down on your retirement savings. You can keep your money in super for as long as you want and your earnings will generally be taxed at 15%.
Your retirement benefits
If you retire and have reached your preservation age, you can draw on your super.
After you reach age 60, benefits paid from a taxed super fund are completely free of tax, whether you choose to draw a regular income or a lump sum. (Benefits from untaxed funds, such as various public service funds, are still taxed.)
If you keep your money invested in the super system by taking your super benefits as a retirement income stream you won't be paying tax on the money the fund earns from its investments. But if you take out your super as a lump sum and invest it, you will pay tax on the investment earnings.
Transition to retirement
If you have reached your preservation age, you can draw on your super without having to retire permanently from the workforce. For example, you could continue working part-time and use part of your super to supplement your income, instead of leaving the workforce altogether.
Under the transition to retirement rules, if you're still working, you can only access your super as a 'non-commutable' income stream, such as an annuity or a transition to retirement allocated as a lump sum. ('Non-commutable' means you can't convert into a lump sum.)
However, you can convert your transition to retirement income stream to cash when you retire or reach age 65. Or you can stop the pension and put your benefits back into your super fund, for example if you decide to go back to full-time work.
Plan ahead
Retirement often sneaks up unexpectedly, so plan ahead.
Some retirement decisions can prove impossible or expensive to change. Leave your super inside your fund, or inside the super system (for example a rollover fund or approved deposit fund) until you know exactly what to do. Taking your money out of super may force you to pay unnecessary tax.
Find out how tax and government welfare benefits may affect you. Centrelink's Financial Information Service offers free, independent information through seminars and personal appointments about tax and government benefits, even if you don't expect to claim a pension or benefit. See Centrelink's website for more information.
You may also need personal advice from a licensed advisory business that knows about tax, government benefits and retirement products.
Shop around
Check what your fund offers first, then shop around.
Your fund may offer generous super pensions with low fees that would be hard to find elsewhere. If your fund offers only a lump sum, check if you'd be better off setting up an account-based income stream (allocated pension) with another super fund or purchasing an annuity from a life insurance company.
There are significant tax benefits in converting your super into a retirement income stream such as an account-based pension. See the account-based pension calculator and the retirement planner for more help.
Different products let you turn a lump sum into a stream of income for all your life, for a set period of time or until the money runs out. Check fees and find out how each product may affect your tax and government welfare benefits.
If you take a lump sum and look after it yourself, we suggest you:
More on retirement planning
FIDO Website: Printed 02/09/2010
