It’s one of life’s big decisions, but it’s also a decision few Australians feel qualified to make: what to do with their super when they retire.
At retirement, Australians gain access to their superannuation nest egg, a sum of money that until this point has probably been managed and invested for them without requiring too many decisions on their part.
According to the Australian Bureau of Statistics, more than 50 per cent choose to withdraw their super as a lump sum, some to use for well-earned rewards for a life of labour, others to invest in the likes of property or put in a term deposit account with a bank.
Others choose to leave their super in their super fund, using it to pay them a regular income via an income stream, either on its own or to supplement the Age Pension, depending on their eligibility. This method means your super continues to be invested, even as you draw down on it for regular income payments and can really help you grow your income in retirement.
So how do the choices stack up? Let’s look at the figures.
If you had kept your super in an Industry SuperFund and opened an Income Stream account five years ago and withdrew the minimum amount ($13,482 over five years), it would now be worth $60,537, and you would have received a regular income to supplement the Age Pension.
However, if you took out the $50,000 and put it in a term deposit with a bank and withdrew a similar income ($12,112 over five years), today your balance would be only $44,571.
And the larger your super balance at retirement, the more apparent the benefits are.
If you retired five years ago with $200,000 in super and put it in an Industry SuperFund Income Stream account and withdrew the minimum amount as a regular income ($54,127 over five years), today your balance would be $244,013.
The same amount of money placed in a bank term deposit, withdrawing a similar amount ($48,446 over five years) would now amount to a balance of $178,284.
It’s important to note these projections are based on the past five years of super fund returns, and may not reflect future returns.
Another benefit of an income stream option is that you can change your mind any time. If you want to increase, or decrease, your payments, make them monthly instead of weekly, or withdraw a lump sum for a holiday or a new car, you can.
The only way to work out the best retirement strategy for you is to crunch the numbers.
Your super fund may give you access to a free or low-cost financial adviser.
Disclaimer: Comparisons modelled by SuperRatings, commissioned by ISA. Modelled outcomes show results over the last five years for the average net benefit results of the main balanced investment options of 15 Industry SuperFunds’ retirement income products and the average of the 4 large banks term deposit returns over each 12-month period to 30 June 2016.
Modelling for Industry SuperFunds takes into account historical earnings, fees and a drawdown amount of 5% p.a. during the first 5 years of retirement. Examples assume the average 5 year Industry SuperFund investment return of 9.49%.
Modelling for the big 4 banks uses the average 12-month term deposit rates of 3.0% to calculate earnings and assumes that the term deposit is held outside of superannuation, with no administration or investment fees deducted over the 5-year period and no tax paid on earnings.
Capital growth will not continue throughout retirement. Past performance is not a reliable indicator of future performance. Outcomes vary between individual funds and banks. Consider Product Disclosure Statements (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision.
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