Tags: Money. Finance. Superannuation. Retirement.
Your super is your retirement nest egg and access to it controlled by measures designed to preserve it until you retire except in exceptional circumstances. When you are at or near retirement you can access your super when you reach your ‘preservation age’ as long as you are permanently retired or have reached age 65.
Your preservation age is the minimum age, set by law, that your super must be ‘preserved’ until and is currently between 55 and 60, depending on when you were born. If you were born before July 1, 1960, you can access your super at age 55. If you were born after July 1, 1964, you can access it at age 60. Before retirement, there are other ways to access your super including starting a transition to retirement pension or specific circumstances such as severe financial hardship, compassionate grounds, permanent incapacity or a terminal medical condition.
These will be discussed in later articles. If you withdraw part or all of your super benefits on or after the age of 60, you will pay no tax on the withdrawal except if you are a member of certain types of public sector super funds. Withdrawing before age 60 will incur a tax the rate of which will be dependent on several factors. See the ATO website for details. You can withdraw your super as a lump sum or pension or combination of both. To start a pension you will need to transfer all or part of your super balance into a retirement income account within the super fund. Prior to starting a pension, your money will be held in what is known as an accumulation account.
Earnings on the accumulation account are taxed at 15% whereas earnings on the retirement income account are tax-free provided the balance in the account is below $1.6 million. This tax-free income is one of the significant benefits of maximising the money that you accumulate in your fund during your working life. Once you start a pension you must draw a minimum amount from your pension account each year. There is no maximum amount other than the balance of your super account so you may withdraw the balance of your account.
The minimum draw for a pension starts at 4% pa of your fund balance if you are under 65 and rises in steps to 14% pa if you make it to 95. The minimum draw requirement means that you must have sufficient liquidity in your fund to make the annual payments. This may be a problem for the likes of a self-managed fund that is heavily invested in property where the income from which is insufficient to meet the minimum draw requirement. Some property may have to be sold to enable the minimum annual pension payments to be made.
Super needs to be considered as part of estate planning. Super death benefits are tax-free when paid to someone who was financially dependent on a deceased fund member but taxed when paid to a non-dependant. Your death benefit will be the sum of the balance of your super account plus any benefits payable under an insurance policy. If you die your super fund trustee normally pays your death benefit to one or more dependants of your estate.
If you want to be sure that the benefit be paid in accordance with your wishes you need to make a binding nomination. A binding nomination needs to be renewed every 3 years unless you put a non-lapsing binding nomination in place. In this article, I have covered some of the basics of accessing your super in retirement. Super is a complex and ever-changing topic and different funds have different rules. Do your own research and always check with your super fund before making any decisions.