Regular income payments from your super in a simple and tax-effective way
Superannuation is a major source of income in retirement, next to the Age Pension (if you are eligible)
You can begin a retirement income stream once you reach preservation age and permanently retire OR when you reach age 65 even if you still choose to continue to work. You can choose to take a lump-sum payment, regular income stream or a combination of the two, whichever best suits your lifestyle and cashflow needs.
Aged 60 and over, YOUR income payments are tax-free.
Under 60 (reached preservation age) taxed at your marginal tax rate less 15% tax offset
Retirement Income Streams come in the form of:
- Account-based pension – retirement income stream you can commence using proceeds from your super balance (have met condition of release) You choose how your money is invested and any earnings (return on investments) you receive are generally tax-free. There is no cap on how much you can withdraw, but you must withdraw a minimum percentage of the balance each year
- Defined Benefit – retirement benefit is calculated by a multiplying number which reflects the number of years of service and your contribution rate, payments are usually guaranteed for a fixed period of time/life (market fluctuations have limited effect on the value of benefit)
- Annuities – product provides you with guaranteed income in retirement for a fixed period of time/life
Superannuation income streams receive concessional taxation treatment including tax-free earnings on assets within the income stream, where they meet the definition of a ‘retirement phase income stream’ and meet relevant SIS standards.
Transfer Balance Cap – as at 1 July 2017 a $1.6 million cap applies on the total amount of super that can be transferred into a tax-free retirement income stream account. If you breach this new cap, you will be subject to a tax on the notional amount of the earnings on the excess. The cap will be indexed in $100,000 increments in line with the Consumer Price Index (CPI)
Your income stream (once in place) will be affected in a number of ways:
- Investment returns will either or subtract from your balance depending on the market
- Fees and other costs will also be deducted from your balance
- Majority of funds are likely to go towards the regular payment or any lump sum withdrawals you make
- Payments will continue to be made until your account balance is exhausted
Prior to commencing a Retirement Income Stream, you should consider:
- your financial needs in retirement
- your balance
- tax benefits and disadvantages
- other income
Speak to a professional or contact our office if you would like some assistance in the best income stream solution for you.
If you would like to work out the how long you can expect your account-based pension will last: Account-Based Pension calculator | ASIC’s MoneySmart