You've worked hard for many years and are looking forward to your
retirement. The idea of never working again might really appeal
to you. You might be planning to retire early and pursue your post-career
dreams. Or perhaps you want to continue working later in life and
just adjust your life-work balance. The ‘retire at 60’ mentality
has changed and people in their 60s and 70s have a lot more options
available to them.
By law, your superannuation generally can't be accessed until you
reach your ‘preservation age’. Before you decide to retire early,
check whether you can access your superannuation.
For more information about you're 'preservation age', click
TRANSITIONING TO RETIREMENT
Some people don't want to make a sudden break from working full-time
to not working at all. Instead, they choose to reduce working hours
and keep the stimulation, remuneration and social contact of their
job while blending it with the freedom and gentler pace of semi-retirement.
The Government's ‘Transition to Retirement’ rules make this option
more attractive. Once you have reached your 'preservation age' you
can access your super and continue to work. For example, you could
continue working part-time and use some of your super to supplement
your income. The income stream needs to be 'non commutable', which
means you can't take lump sums from it while you are still working.
PLANNING FOR RETIREMENT
Achieving the standard of living you want in retirement isn't likely
to happen by accident. Planning your finances in advance can give
you a lot more flexibility and choice in retirement.
Putting in place the most appropriate plan for your retirement
will be one of the most important financial decisions you'll make.
If you're approaching retirement age, it's a good idea to take steps
to understand your options.
While super may be a significant source of retirement income,
you might also have other potential income sources, such as the
age pension, and investments, such as term deposits, shares and
Retirement planning can be quite complicated because how you structure
your assets and income can have very different tax and social security
implications. Clever planning could result in you having to pay
less tax and also being able to access age pension entitlements.
ACCESSING YOUR SUPER
Generally, you won't be able to access your super until you
reach your ‘preservation age’.
Since May 2006, you are no longer required to withdraw your
super or commence an income stream once you reach a particular
age. Regardless of your age or employment status, you can
leave your money accumulating in your super fund in the tax
advantaged environment for as long as you like.
Once you are entitled to access your super you might want
to take it as a lump sum or invest in a superannuation pension
or annuity to provide you with a regular income stream. Put
simply, pensions are available from superannuation funds,
whereas annuities are available from life insurance companies.
You might choose to:
- Access your super as a lump sum
- Roll it over to a pension or annuity product and commence
a regular income stream
- Leave it accumulating in your super account
- A combination of the above.
There could be significant benefits in ‘salary
sacrificing’ income to super while supplementing your
income with a super pension – including the potential
to pay less tax and accumulate greater superannuation
benefits. A financial adviser will be able to help you
understand issues involved with 'transitioning to retirement'
and whether it is suitable for you.
Deciding when and how you will utilise
your superannuation can be quite complex, as different
decisions will have different consequences including
tax and social security implications. There are
different income stream products available, so
shop around to find the product that suits your
needs. You should consult your financial adviser
who can assist you with your retirement planning.
SUPER INCOME STREAMS
Choosing to draw on your super through a pension or
annuity product can provide you with tax advantages
and a regular income. Earnings on assets supporting
these pensions and annuities are tax exempt.
There can also be social security advantages by purchasing
certain types of these products before 20 September
Prior to the new rules that commenced on 1 July 2007,
there were many income stream options available, each
with different features and benefits. Three of the most
popular options include:
- Term allocated income streams – provide a fixed
percentage of the account balance each year. Income
can go up and down depending on market movements.
- Allocated income streams – allow recipients to choose
how much income they receive each year between minimum
and maximum limits, calculated based on the account
balance. Income can go up and down depending on market
movements. They provide the added flexibility of being
able to make lump sum withdrawals at any time and
continue until your money runs out.
- Complying guaranteed income streams – provide a
guaranteed amount each year for the guaranteed period
On 1 July 2007, one simple set of rules replaced the
multiple rules for pensions, although providers have
a transition period whereby they on the rules before
1 July – this is only until 19 September 2007.
Pensions that met the previous rules and were commenced
before 1 July 2007 are deemed to meet the new minimum
- Pre-July 2007 complying guaranteed income streams
will continue to be acceptable, but the new rules
accommodate more traditional guaranteed income stream
- Pre-July 2007 allocated pensions are allowed to
transfer to new pension products from 1 July 2007
without needing to commute.
New products called ‘account based income streams’
commenced from 1 July 2007. These income streams must
pay a minimum amount at least annually but there will
be no maximum, allowing people to draw out as much as
they wish, including lump sums – even the entire balance.
Upon your death, the unused portion can be transferred
to a dependant or cashed as a lump sum to your estate.
If you commence an income stream under ‘transition to
retirement’ conditions, a cap of 10% of the account
balance will apply as the maximum payment available
From 20 September 2007, the 50% assets test exemption
for complying income streams will be removed for income
streams commenced from 20 September 2007. Pre-20 September
2007 income streams will not be affected.
QUALIFYING FOR THE AGE PENSION
Your income and assets need to be below a certain amount
to qualify for the age pension. An important part of the retirement
planning process is reviewing your financial affairs and making
decisions with an understanding of how they impact on any
potential social security entitlements.
From 20 September 2007, the age pension assets taper halves
so recipients only lose $1.50 per fortnight rather than $3
for every $1,000 of assets above the assets test threshold.
This may result in more people becoming eligible for age pension
payments and many who receive part-pensions may have their
The income test also applies and it is the lower amount
achieved under the two tests that determines whether the person
receives an age pension and if so, how much. For details about
qualifying for the age pension, contact Centrelink
or consult a financial adviser.
Did you know?
Significant changes to the rules governing
income streams take effect in 2007 – some came
into effect on 1 July 2007 and some on 20 September
For example, term allocated and complying
guaranteed income streams can be 50% exempt from
the age pension assets test if purchased before
20 September 2007.