Retirement is filled with opportunities and choices. There’s the time to travel more, work on long-delayed personal projects, and the opportunity for time to volunteer your help to worthwhile causes.
There are many different options for consideration when it comes to supporting your new life away from paid work. Here we have included four different options:
1. Account-based pension (ABP)
An ABP using your superannuation is one of the most common retirement income options. The amount you receive depends on the balance of your account and the drawdown rate you choose, subject to the minimum pension requirements set by the government.
Some considerations:
- Tax benefits – Investment earnings, capital gains and withdrawals are tax-free, unless you have an untaxed component within your super.
- Payment flexibility – Subject to pension minimums, most super funds allow you to adjust the payment amount and frequency, and even make partial or full lump-sum withdrawals if needed. You can also return to work and continue to receive a pension.
- Longevity and market risks – You might outlive your account balance, especially if your withdrawals are high or your investment returns are low.
2. Transition to retirement (TTR)
A TTR strategy allows access to some of your superannuation while you’re still working, if you have reached the age of 60 (based on current rules).
Some considerations:
- Flexible work options – You can reduce your working hours and supplement your income from your super.
- Limits on pension rates – Similar to an ABP, there is a minimum annual pension rate. However, there is also a maximum annual withdrawal of 10% of your TTR account balance.
- Reduced retirement savings – Drawing on your superannuation while still working means your retirement savings might grow more slowly.
3. Annuities
An annuity is a financial product that provides a guaranteed income for a specified period or for the rest of your life.
There are various types of annuities, including fixed, variable, and indexed annuities. You can purchase annuities or lifetime income streams using your superannuation.
Some considerations:
- Predictable income – Provides a stable income stream, which can ensure financial stability and provide an income for as long as you live.
- Reduced flexibility – Once you purchase an annuity, the terms are generally fixed, and you cannot alter the income amount. There’s a restriction on capital withdrawals or, in some instances, no access to capital.
- Inflation risk – Fixed non-inflation-linked annuities may not keep pace with inflation unless specifically indexed to inflation.
4. Innovative retirement income stream (IRIS)
An IRIS is provided by a newer range of products. These were introduced after changes to regulations designed to deliver more certainty to retirement income by paying a pension for life without running out of funds.
Some considerations:
- Age pension benefits – Centrelink only counts 60% of the pension payments received as assessable income, and only 60% of the purchase price of the product counts as an assessable asset until age 84, when it is reduced.
- Certainty – Some IRIS products offer a stable, guaranteed income stream, providing financial security.
- No minimum requirements – IRIS products do not require an annual minimum amount; they just require at least one annual payment.
- Complexity – Features vary widely between different IRIS products and may involve complex terms or conditions.
Next steps
To understand how these different options could suit your personal needs and how they would affect your retirement income, contact your local Nexia Adviser today.
Our team can assist you with structuring a plan to fund the retirement lifestyle you’ve worked so hard for. We help you navigate these choices and tailor a plan to connect with your true potential.
