Retirement Planning FAQs
When can I access my super?
The government places restrictions on when you can access your super so you can only access it if you have satisfied a condition of release such as:
- Retiring permanently from the workforce on, or after, reaching your preservation age
- terminating your employment after you reach 60
- reaching 65
- becoming temporary or permanently incapacitated
- having a terminal medical condition
Your preservation age depends on your date of birth:
|Your date of birth||Your preservation age|
|Before 1 July 1960||55|
|1 July 1960 – 30 June 1961||56|
|1 July 1961 – 30 June 1962||57|
|1 July 1962 – 30 June 1963||58|
|1 July 1963 – 30 June 1964||59|
|1 July 1964 or after||60|
Some conditions of release allow the partial cashing of benefits, including:
- compassionate grounds
- financial hardship.
In some instances, if withdrawals are made under age 60 there could be some tax consequences relating to the taxable component of the super withdrawal.
What types of income streams are there?
Account Based Pensions
You can start an account-based pension by transferring your superannuation savings into a pension account and begin drawing regular payments into your bank account, just like a salary.
You can choose how much income you want (above the specified age-based minimum) and continue to receive regular income, until all of your super savings are exhausted, or you pass away. When you die, the balance of the savings is paid to your nominated beneficiary or to your estate.
The minimum pension factors are based on your age and are as follows:
|Age at start of pension and 1 July each year||Minimum amount pa|
|Under age 65||4%|
|65 – 74||5%|
|75 – 79||6%|
|80 – 84||7%|
|85 – 89||9%|
|90 – 94||1%|
NOTE – In 2020, due to the Coronavirus, the Government halved the minimum pension factors for the 2019-20 and 2020-21 financial years.
Your income payments are tax-free once you reach age 60. Tax could be payable under age 60, but you may be eligible for a tax offset of up to 15% on any taxable amount.
Account based pensions are very tax effective as there is no tax on investment earnings, no capital gains tax and no tax on any lump sum withdrawals.
Fixed Term Annuity
You can use your superannuation savings or your personal savings (non-superannuation money) to purchase an annuity. Annuities provide a guaranteed regular income in exchange for an initial lump sum amount, paid to you monthly, quarterly, half-yearly, or yearly, whichever suits your needs best, for the term of the annuity. The return of the Annuity is determined at the commencement of the investment and generally is based on the current available interest rate.
As the name suggests a fixed term annuity will pay you an income for a set period of time, usually between 1 and 30 years. If you live longer than the fixed term, the annuity will stop. When you purchase the annuity, you can choose to receive all or part of your original investment amount back at the end of the term (this is called the residual capital value), however this will reduce the amount you receive each year as income.
Transition to retirement (TTR) pension
A transition to retirement pension is an income stream you can commence while you are still working, using your superannuation, if you are over your preservation age (starting at age 55 and increasing depending on your date of birth).
If you would like to reduce your working hours without reducing your income, then a transition to retirement pension could be the solution, allowing you to top up your part-time income with a regular ‘income stream’ from your super savings.
You can choose to take up to a maximum of 10% of the account balance as at 1st July each year as a regular payment. The normal minimum pension factors apply to TTR pensions (see Account Based Pensions).
With this type of pension, you are restricted from taking lump sum withdrawals. However, when you reach age 65 or stop working, it automatically converts to a normal account-based pension and you are free to take lump sum withdrawals (if you wish).
What is a retirement income stream?
When you retire and your salary stops, to assist with funding your living costs you can set up regular payments from your savings. This is called a ‘retirement income stream’. The type of income stream you can start will depend on whether your savings are depends on whether the savings are inside or outside of super.
How much money do I need to retire?
This is not a straightforward question and it really depends on the type of lifestyle you want after you retire. Most people’s lifestyles will be less costly in older age, because they usually no longer have to support children and have often paid off their mortgage.
The Australian Prudential Regulation Authority estimates that on average, most people need an income equivalent to about 60% of their annual salary. They also estimate that the average worker needs a total investment of about seven times their annual salary to achieve this. This requires a significant contribution over a period of decades if the contribution is in the range of 10% of salary. It is important to realise that the current rate for the age pension is about 25% of average weekly earnings (and you may have been earning more than the average when you were working).
How much can I contribute to super?
There are limits on the super contributions you can make to your super fund each year depending on the type of contribution you make.
- Concessional contributions – $25,000 pa
- Non-concessional contributions – $100,000 pa
Can we hyperlink concessional and non-concessional to the previous question??
The concessional contributions cap is currently $25,000 pa, unless you’re eligible to make carry-forward contributions. Carry-forward contributions allow you to carry-forward any unused concessional contributions cap in any financial year for the next five years.
The cap for non-concessional contributions is currently $100,000 pa, unless you are eligible to use the bring-forward rule. The bring-forward rule allows you to bring-forward the next three years of your annual non-concessional contributions cap into the current financial year, meaning you can contribute up to $300,000 without exceeding the cap.
What are carry forward contributions?
From 1 July 2018 there is a 5-year carry forward of unused concessional contributions under the annual $25,000 cap. Key features include:
- Unused concessional contributions up to the cap of $25,000 pa can be carried forward for a maximum of 5 years.
- Your total superannuation balance must be less than $500,000 as at 30 June of the previous financial year.
- The new rules apply from 1 July 2018 which means only unused cap amounts from 2018-19 and later financial years can be carried forward (the first financial year in which unused concessional contributions can be used is 2019-20).