What should I do with my superannuation?
A key benefit of super for retirees is that it represents a very tax-effective structure in which to hold investments. And an important point to keep in mind when thinking about superannuation is to realise that it’s not an investment in itself. Rather, as a tax structure it lets you invest in the same asset classes as there are for non-super investments. Key options include cash, fixed interest, property, and Australian and international shares. And if you’ve got a self-managed super fund, you can also hold direct property and assets such as collectibles.
Once you are in the pension phase, which will apply to most retirees, there is no tax on the income and capital gains of the fund. Furthermore, if you’re over 60 and in the pension phase, the income paid to you is tax-free.
The key question then, is what to invest in. This is critical because for most retirees this will be the main source of income once you’re no longer getting regular wages or a salary. And with no more employment income, barring a sizeable inheritance or a sudden windfall, what you have now is it.
There are many investments within the asset classes mentioned above. However it is the asset class mix that is vital. How do you know which assets classes to invest in? What mix is best and what are you comfortable with? The best option here is to seek professional advice to ensure you’re effectively positioned to make the best decisions for your personal circumstances.
In terms of accessing your super, once you reach your preservation age, your three options include the following:
- Taking it as a lump sum
- Establishing a retirement income stream or pension (e.g. a monthly payment)
- A combination of both
Most super nowadays gets converted into an allocated pension. An allocated pension is simply an income stream that you receive from your super fund when you retire and are over 55. This simply means that each month or other period, you nominate cash that is transferred to your bank account for you to fund your living expenses in retirement.
If you are in a defined benefit super fund, which many public servants are in, you will receive your benefit, which some people see as a pension but is really a defined benefit.
If you choose to take your super as a retirement income stream, the money that you're not accessing continues to work for you and earn interest.
If you don’t retire, you can access your super as a transition to retirement income stream (pension) but not as a lump sum. Keep in mind there are rules around the minimum and maximum amounts you can withdraw.