The secret benefits of super you need to consider

A super lump sum is likely to be the largest amount of money many Australians have ever had access to.

But a sudden ability to spend hundreds of thousands of dollars should be a time of careful decision-making, as tempting as it might be to throw caution to the wind and blow a big chunk on a dream car or an extravagant holiday.

According to the Australian Bureau of Statistics, more than 50 per cent of retirees withdraw their superannuation in a lump sum when they retire, and while it’s understandable, it means they are missing out on a range of benefits available through their superannuation fund, and risk running out of money and having to rely on the Age Pension in their later years.

Perhaps the most significant additional benefit offered by superannuation is insurance. Super funds can buy policies in bulk, meaning they can demand significant discounts to pass on to members.

Members pay for their policies with pre-tax dollars, as opposed to those who buy policies outside their fund with after-tax money. And insurance policies within super funds are generally on a pre-acceptance basis, meaning no medical test is required.

Of course, as people get older their insurance needs change. Most life insurance policies end at 65 or 70, and insurance for total and permanent disability and income protection become less relevant once people leave the workforce, but many super funds also offer their members significant discounts for the likes of health and travel insurance, some tailored particularly for older Australians.

The choice to withdraw your super in a lump sum means losing access to these benefits, but there is a middle ground.

Depending on your circumstances you might consider withdrawing some of your super, for the likes of a great holiday, house repairs or a new car, while leaving the bulk inside your super fund to provide you with an income stream which can be used either alone or to supplement the Age Pension.

Going on a holiday is something you may want to consider.

The additional benefit of this approach is your remaining super continues to be invested by your fund, and therefore it could continue to grow, even as it pays you.

You can even make the move gradually with what’s known as a ‘transition to retirement income stream’. For example, you might cut back on your hours at work in the lead-up to retirement, but continue to enjoy the same income through salary sacrificing (taxed at 15 per cent) and draw a pension from your super fund (tax free).

Talk to your super fund about an income stream and transition to retirement options, or consult a financial adviser to work out the best option for you.

Keep your super invested when you retire and grow your income.
Turn your super into an income stream when you retire and you can receive a regular income to top up the Age Pension, while the balance stays invested.

Everything you need to know is at industrysuper.com