Weighing up your retirement income options
Approaching retirement is a pivotal moment in your financial journey, and one of the most significant decisions you face is how to access your superannuation savings.
Two of the most common options are creating an account-based pension or withdrawing lump sums from your super account. In this article, we'll explore the benefits of choosing an account-based pension versus taking lump-sum withdrawals when you reach retirement age.
The major differences between an account-based pension and making lump sum super withdrawals
| Account-based pension | Lump sum withdrawals |
|---|---|
| A steady stream of regular income that’s dependable | Lump sum withdrawals offer immediate access to your super savings |
| Your super remains invested and continues to grow | You have the flexibility to invest your money as you see fit |
| Payments at a frequency of your choice: monthly, quarterly, or annually | Lump sum withdrawals do not come with the rules and regulations that govern account-based pensions |
| Income payments you receive are tax-free if you're over 60. If you're under 60, a portion of the income may be taxable, but you'll receive a tax offset to help reduce your tax liability | If you have outstanding debts, taking a lump sum withdrawal can help you pay them off |
| You have control over the amount of pension payments, allowing you to tailor your income to your specific needs and budget |
Choosing the right retirement income for you
Account-based pensions are also commonly referred to as allocated pensions or superannuation pensions. These are self-funded income streams that rely on the superannuation savings you have accumulated throughout your working years. To establish an account-based pension, you transfer a portion of your super savings into a separate account, from which you can receive regular payments into your bank account.
Accessing your super
The choice between an account-based pension and lump sum withdrawals depends on your individual circumstances and preferences. Some retirees may benefit from a combination of both approaches. Consider the following factors when making your decision:
- Other savings and investments, such as property
- Lifestyle and spending needs
- Tax considerations
- Investment goals and risk tolerance
- Long-term financial security
- Estate planning objectives
You could consider consulting with a financial adviser who can help you assess your specific situation and create a retirement income strategy that aligns with your goals.
Deciding between an account-based pension and lump sum withdrawals is a significant financial decision. Each option comes with its own set of advantages and considerations. While an account-based pension offers a stable income stream, tax benefits, and investment continuation, lump sum withdrawals provide immediate access, flexibility, and investment freedom. If you want to learn more, explore Australian Ethical pension options.
Ultimately, the right choice depends on your personal financial goals and circumstances. Consulting with a professional adviser can help you make an informed decision that best suits your retirement needs.
This is general information only and does not take account of your individual investment objectives, financial situation or needs. Before acting on it, consider its appropriateness to your circumstances and read the Financial Services Guide (FSG), Product Disclosure Statement (PDS), and Target Market Determination (TMD) available at https://www.australianethical.com.au/super/pds-forms/. You should consider seeking advice from an authorised financial adviser before making an investment decision.
