Brian, your superannuation fund may give you the option of taking your superannuation savings as a lump sum payment, a regular income stream (a pension) or a combination of the two. This is dependant on the super fund you are a member of – for example, some super funds will only pay you a benefit as a lump sum – so check with your super fund to find out your options. However you may be able to transfer your benefit to another fund when you retire if you want to receive a pension.
Generally, if a person retires at or after the age of 60, their superannuation benefits are paid to them tax free (if paid from a taxed super fund). This is the case whether you take your superannuation benefit as a lump sum or as a pension.
For example, a person retires at age 60 with a superannuation benefit of $230,000. Their super fund allows them to take their superannuation benefit as a lump sum, a pension or a combination of these two options. So, they decide to take $50,000 as a lump sum and use the funds to buy a car, fix up some things around the home and take a holiday. They then use the remaining amount of $180,000 to commence a pension that pays a regular income of $12,000 per annum or $1,000 per month.
If your superannuation fund offers you the option of commencing an account based pension with some or all of your superannuation savings, then you will be required to take a minimum amount of income each year – the percentages are listed below. (Some funds may offer other types of pension which have different rules, but account based pensions are the most common, at least in the private sector):
| Age |
Percentage of account balance on 1 July of each year to be paid as a minimum |
| Under 65 |
4 |
| 65 - 74 |
5 |
| 75 - 79 |
6 |
| 80 - 84 |
7 |
| 85 - 89 |
9 |
| 90 - 94 |
11 |
| 95 + |
14 |
So, in the example above the person would have to take at least 4% of $180,000 ($7,200) of income each year – but they can take as much as they like, there is no limit. Of course, the higher the amounts taken, the shorter the period in which payments can be made.
As to the second part of your question, there isn’t a different tax rate if you retire at 60 or 65 – the same tax rules apply to persons who are 60 and older. Therefore, you may need to consider other issues when trying to determine when you should retire, such as:
- Will you have enough savings to retire comfortably?
- Men can’t get the age pension until they turn 65, women can’t get the age pension until they are somewhere between 63.5 and 65 (depending on their date of birth) – so will you have enough income to live on if you aren’t getting any income from employment or the age pension from Centrelink?
- What will you do with your time?
- What is your health like – can you continue working?
- If you have a partner, what is your partner’s working situation?
- More time in the workforce means more savings - this may provide for a better income when you finally retire.
To help you consider these issues you should speak to a licensed or appropriately authorised financial adviser. If you would like to speak with a Mercer financial adviser about your retirement strategy, please call us on 1800 633 403.
Richard Carey is an authorised representative #290608 of MINL. To read more about Richard, click here.
