Jack Kewalram is a Lane Cove local and a Private Client Adviser with PSK Private Wealth.
PSK Private Wealth is also an ITC Business Supporter, and without the support of Lane Cove locals like Jack, ITC would not exist!!
Jack would love to work with Lane Cove locals to help them with their financial goals. This month the PSK Wealth team are discussing a common question asked by clients – should you take their super as a lump sum?
Should You Take Your Super as a Lump Sum?
Taking your super as a lump sum might be tempting, but it won’t be the best option for everyone.
You’ve probably spent much of your working life accumulating super. So, when the time comes, and you’re able to access it, you might be wondering whether you’d be better off taking the money as a lump sum, regular income, or even a bit of both.
To help you make a more informed decision, PSK Private Wealth has pulled together what options are on the table and some tax implications worth considering.
Taking Your Super as a Lump Sum
If you’re thinking about taking your super as a lump sum, consider some of the following points.
Making your money last
A lump sum could help you to pay off your home loan or other outstanding debts, but you also need to think about what you’ll live on if you have no super left.
The Age Pension may be one option, if you’re eligible for it, but if you’re pinning your hopes entirely on government support, you should also consider the sort of lifestyle it will fund.
June 2022 figures from the Association of Superannuation Funds of Australia (ASFA) show a 65-year-old couple retiring today would require a suggested annual income of around $61,108 to fund a ‘comfortable’ lifestyle in retirement, assuming both people are relatively healthy and own their home outright (i).
By comparison, the maximum Age Pension rate for a couple is currently $37,341 annually (ii).
Possible tax implications
If you’re going to take a lump sum you should also look into tax rules. If you’re over age 60, super money you access will generally be tax free, but if you’re under 60, you might have to pay tax on your lump sum.
Another thing to think about is if you invest the money, depending on where you put it, you may be taxed on the interest you make, or possibly the capital gain. Whether taking your super as a lump sum is tax-effective, or not, will depend on your individual circumstances.
Taking Your Super via Regular Income payments
If you’re thinking a regular income in retirement would suit you more, an account-based (or allocated) pension could be a tax-effective option, noting it’s based on the super you’ve saved to date, so won’t guarantee an income for life.
If you’re converting your super into an account-based pension, there will also be limits on how much you can transfer.
Below are some other things to consider.
Having access to your money
Typically, there is no limit to how much you can withdraw from an account-based pension. So, in addition to receiving periodic payments, you can choose to withdraw some or all of your money as a lump sum.
Each year however, you’ll need to withdraw a minimum amount. This amount is calculated based on your age and will be a percentage of your account balance each year.
Possible tax implications
By moving your super money into an account-based pension, your money will not be exposed to the tax rules that apply to money held outside of super. This means:
You won’t be taxed on investment earnings within your fund
If you’re between your preservation age and age 60, the taxable portion of your account-based pension will be taxed at your marginal income tax rate, less a 15% tax offset
From age 60 you won’t pay tax on account-based pension payments you receive
Whether an account-based pension is tax effective will depend on your individual circumstances.
Investment control and earnings
You can generally choose from a range of investment options and an investment manager will make the day-to-day investment decisions on your behalf. A broader range of investments may also be available depending on the type of account-based pension you have.
Keep in mind, investment returns from an account-based pension are tied to movements in investment markets, so can go up and down.
Weighing Up your Options
There’s a lot to think about when deciding how you’ll use your super. To determine what’ll work best for you, speak to PSK Financial planner, Jack Kewalram today on 0435 962 973.
Being a Lane Cove resident, Jack can visit you at your home, office or you can schedule an on-line appointment. He is also available for out of hours appointments.
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