Super Insider
Episode 21 Transcript
Title: Income in retirement – how to access your super
Guests: Ruth Weaving and Steven Fehring
Anne: Hello and welcome to Super Insider, where we chat about what you need to know to make the most of your super. I'm Anne Fuchs, the Executive General Manager of Advice, Guidance, and Education at Australian Retirement Trust (ART)
Before we begin the show today, I'd like to acknowledge the traditional owners of the land and waters on which this podcast is recorded.
And a reminder that what we discussed today is general advice only, so you will need to decide if it's right for you.
Today, we've got another instalment of our Q & A series. These episodes are where we answer the most asked questions about superannuation, retirement, financial advice, and all sorts of topics. Why? So, we can help you grow your superannuation knowledge and give you practical tips and tricks to help you retire well and with confidence.
In today's episode, Ruth Weaver and Steven Fehring from our Member Education team will answer some of our most frequently asked questions about how to fund your lifestyle in retirement. So, without further ado, please welcome Ruth and Steven.
Ruth: Thanks, Anne. Ruth and Steven here from ART's Education team. Today, we'll talk to you about some frequently asked questions we get from people who are getting close to retirement and looking forward to finally starting to access that superannuation that they've worked very hard to accumulate.
Now, Steven, we'll start at the very beginning and explain to our audience what an income, or a pension, account is when accessing super.
Steven: So, within superannuation, we use a lot of names for a lot of things, and usually, we say super in the accumulation phase. But eventually, you get to retire and spend your money, and we call that a few different things. So, you might hear it called an income stream, an income account and a pension, an account-based pension, a retirement account or a retirement pension. They all generally mean the same thing. And today, that will all be referred to as an income account.
This means you've taken your money from superannuation and decided to pay yourself. It's very different from the Centrelink Age Pension, which many people get confused with. But essentially, you're paying yourself with your own money, and it's quite flexible how you do that.
Ruth: Yes, and I get asked how it differs from a superannuation account. And people need to recognise that an income stream, or a pension account, for your superannuation looks and feels very much like your superannuation account does. You have very often access to the same investment options, but one of the key differences is the fact that your investment earnings are tax-free once you've retired and you're using an income stream product. Now, if you're still working and accessing money through a Transition to Retirement, that's not the case.
But generally, when you're retired, you know the account will look and feel similar tax-free earnings on your investment options. And it's designed to be a one-way stream. Money comes out of the income stream, or the income product, as opposed to your superannuation, where money generally goes into the account.
If we want to think a little about the logistics of how an income account works, think of it from the context of moving your money out of a superannuation account into an account that will look and feel very much like your superannuation account did. You have access to the same investment options, for example. But the difference here is you will be telling the super fund how much money you want to draw from the account. You'll also tell the super fund how often you would like them to pay you that money. So you might nominate to be paid monthly, for example, in line with your current income. And the other thing to be mindful of is that you can move some of your superannuation money into the income account. You can select an amount. Now, there will be minimum amounts, for example, and maximum amounts, which we'll cover shortly. But be mindful that logistically, the process of moving your funds from your superannuation account, into an income account, to get funds paid into your bank account regularly is very simple.
Steven: Yes, people often get it confused. They think they can only have one or the other, so they think they can only have a superannuation income stream and can't get the Age Pension, but they often work together. And like you've said before, there are many different ways a pensioner or someone can earn income in retirement.
With the income account, generally speaking, you're 60 when you open one up. You get to choose how you're invested. There's a minimum amount that you must draw down, but you get to decide how often, or how much above that, you get paid.
Now, there are other sources of income as well. What sources of income do you think someone else might be looking at?
Ruth: When talking to individuals, people are trying to manage various sources. The most common ones will be: how will I structure this income stream payment in line with my Age Pension? And there may also be income coming into the household from another asset, like an investment property.
When we think back about how I work out how to get it out - is it better to take it out in irregular lump sums and manage it through the bank account? The best thing for people to do is contact their superannuation fund and find out their payment options. Some funds will offer fortnightly payments, some monthly. You can even do quarterly; sometimes, you can do biannually and even an annual payment. So call your fund and find out what options you've got available to start drawing your money from.
Another frequently asked question is how much I have to take out. So, if I move the money across, am I obliged to take money out? Are there minimums or maximums? That is a common question, particularly for people trying to work this income flow in line with other income flows that might have come through to the household.
Steven: This is a tricky one because the minimum amount changes over time. So, between your preservation age and your 65th birthday, it's 4%. And that 4% is just the minimum. It's not the recommended amount; it's not necessarily the amount you should draw out. However, 4% is the minimum that someone between the preservation age and 65 could withdraw. And it gradually goes higher above that. You can find lots of information, such as the moneysmart website, or your super fund's website - they should have criteria and show you exactly what your minimum drawdown is. But that said, minimum drawdown isn't a guideline; it's just the legal minimum you must take out of your income account.
Ruth: That's true, and I love that when we're talking to individuals about the minimum drawdown, we can very quickly follow it up by saying the good news is, though, there's no maximum drawdown. So, you must take a minimum amount, but you're not capped at all for how much you draw down.
Steven: I'll call you out there—the maximum is 100%. Unfortunately, you can't take more than that. If you do, though, you'll have a great one-year retirement.
Ruth: Yes, go out with a bang at the beginning (laughs).
Now, a question that we get asked an awful lot, and it's tough to answer; in fact, it's impossible to answer. But how long is this going to last me? And it's like asking how long is a piece of string? It's going to depend on so many different factors for households. And if I were to think about it as practically as possible, it would depend on things like, what lifestyle are you trying to live? How much are you going to be drawing out of it on a regular basis? How are you going to invest that? Because you will be relying on investment earnings to fund much of the money you're drawing out of the account. So, to protect some of the capital, if you like. It will depend on how long you're in retirement. So, the younger you are at retiring, the longer you'll need to fund that. It can also depend on personal circumstances in the household, whether or not you've got a spouse who's also got superannuation that they're drawing. It takes pressure off you on how much you need to draw down. And, of course, if income comes from other sources, you don't have to draw as much from superannuation as well.
There are lots of brilliant tools out there. Most superannuation funds have retirement calculators. I suggest you visit your fund's website and use their Retirement Calculator. While it won't be exactly like science and tell you exactly the day your funds will run out because it will depend on various assumptions, it will give you a good starting point, indicating what you can and cannot do during retirement.
But going back to the product itself, on drawing down the income, we do get asked, what's the difference then? What are the advantages of moving my money into the income stream versus leaving it in superannuation?
Steven: Yes, that is a common problem when people retire; they don't know what to do, who to trust, and where to go. Your super fund is there to help you with that. But if you were to leave it in the accumulation phase, there are a few things that you would miss out on versus being in the income phase.
Now, in the income phase, some of the benefits are that the investment returns are now tax-free. So, imagine if you made a $10,000 return in the accumulation phase. Up to 15% of that would go to the ATO. Whereas all of that stays in your income account and can pay you an income.
The government has designed superannuation to pay you as much tax-free money as possible because they want you to fund your retirement. So, a huge advantage is tax-free income. Also, once you're over 60, anything you withdraw from superannuation is not assessed for income tax purposes.
Now, a great thing is that many super funds offer a Retirement Bonus. So, they want you to go from the accumulation phase to the income phase and can give you a bonus for doing so because they've reduced their tax liability because of that 15 cents in the dollar you get taxed in the accumulation phase. They no longer have to pay for that. You may get some bonus going from the accumulation to the retirement phase. So check with your super fund what amount they offer, and you'll be pretty surprised at the extra few dollars in your kitty.
Ruth: Now, the next question is, am I eligible to open one of these accounts? Or who can do it? And realistically, it's an age-based system. The rules are dependent on what age you are. Once you've reached what we call the preservation age, and preservation age for anyone listening, is the legal age at which you can now consider accessing your superannuation. And for most of us, that will be age 60.
Once you've reached preservation age, you can consider accessing super in some capacity. Now, if you are still working, there is an option called a Transition to Retirement. We have a podcast on that if you want to listen and learn how that works. But for those who are retired after the age of 60, you absolutely can use one of these products.
An unknown fact here is that if you are 65 and you're still working, you can use one regardless of whether you're working or not. So, once you're 65, you've got full tax-free access to that superannuation, regardless of your work status. So, it is something that many people need to be made aware of. You don't have to wait for the Age Pension age to access superannuation. The windows will open earlier than that.
Another question we get a lot is, what if I move my money into this income stream and then circumstances change? I don't want to access it anymore or I want to put money back? What process do people need to consider if they've changed their mind?
Steven: One of the good things about retirement income accounts is that they have a lot of flexibility. So, should you not need that money paid anymore, you can roll it back to the accumulation phase, you can withdraw it all, you can do whatever you want. They're flexible accounts. So, you can do all that income up and down if needed. You could change to an annual payment and get paid in June. So, you can do many things with these income accounts because they are fully flexible within the product's rules.
Ruth: Another interesting question we get asked about is, can I have a joint income account? And to put our audience at ease here, you can't have a joint income account. Still, you can both have income accounts under the same superannuation fund, but they can't be in a joint name.
Remember, you can't get money from income stream accounts directly. So sometimes, we'll field lots of questions about an inheritance that came through. You may be downsizing the property and want to take advantage of the downsizing rule. If I can tell you this way, an income account is one-way traffic. Money can only come out of the income account. That's the reason why sometimes you might want to revert your income account back to a superannuation account, or you might decide to leave a small amount in your superannuation account as well if you think that there may be money coming your way over the next couple of years and superannuation is where you want that money to end up.
Steven: Yes, it's important for the listeners to understand that for any money outside of superannuation, the first port of call must be an accumulation account. There's no option to put it anywhere else. Within a day, it can go to another account. Still, an accumulation account is the first port of call for non-superannuation money.
Ruth: That's where the journey begins, in the accumulation stage, and you can move it over to that income stream stage once you are eligible under that age criteria we talked about.
The next question that comes up quite a lot is, when I can open an income account. So, at what point can I start to talk about this?
Steven: You can open it up any time now. People think financial years - it doesn't matter. You can open it up in January; you can open it up in May. It doesn't matter. You can open whenever you're eligible to open the account. What's essential is that the minimum payment is pro rated in the first year.
Should you open an income account during the middle of the year, it's actually pro rata the minimum amount you must withdraw. Now, there are different age-based minimums that you would draw out. So, if you open one up at the beginning of the financial year, because it is based on financial years, on 1 July, you must take out that full minimum over that entire year. Should you open one up halfway through the year, on 1 January, for example, you only have to take out half of that minimum payment because it's prorated for you. So, a huge advantage there.
Ruth: A common question for us is, what kind of different income accounts can I have? How do I compare? My money might be in one particular fund. I've also got an account in another fund. I want to bring it all together. Which one should I use for my income stream? And it's about reminding people there can be differences. You can compare some of the features of an income account. A lot of the comparative points when comparing these products are not dissimilar to how you would compare an accumulation account or your superannuation account during working life. You would be looking at things like the fees associated with it and the investment earnings that the fund has been able to generate. But what other comparative points might someone need to consider if you're looking across funds?
Steven: Yes, you're right. It is very similar to the accumulation phase, and it's hard to compare them equally because a lot of stuff is variable. Fees are generally fixed, but you can choose the same investment options in the income phase. Insurances typically aren't allowed in the income phase either. So, there are lots of things to consider. It's just a matter of making sure you're comparing apples to apples. So, suppose you're looking at your account in cash, and you can have another account in aggressive. In that case, they're going to have very different returns and very different investment fees. So make sure when you compare your funds that you've got similar products, so you can see which is right for you. But it comes down, for a lot of people, to convenience. So, being able to access the app, being familiar with how the website works, and making sure you're with someone you trust.
Ruth: Yes, that's a good point about the app that you made. So, looking at things like the flexibility of being able to change the frequency of your payments, particularly if you're travelling and it's not always easy for you to get on the phone and talk to your superannuation fund. What kind of facilities do they have for you to self-serve? Can you change the frequency of your payment, adjust the amount, or even take a lump sum out of that income stream as well? And that's something that we still need to discuss. The fact that the income stream product is so flexible means you are able, at any point, to take an additional lump sum out of that particular account as well as the regular flow of income that you've got.
Steven: Yes, spot on. You'd hate to be stuck in the Nullarbor trying to withdraw $10,000 from your account using a form. Doing it that way would not be easy.
Ruth: Yes, trying to rely on snail mail to get that form into the fund. Look, some questions we often get asked as well is, do I have enough to start an income account? What are the criteria here? However, different funds can have rules regarding how much is needed to come from the superannuation account.
Now, I mentioned you don't have to use all of your superannuation to open the income account. You might want to leave some in super and move a portion of it, mainly because you do have to take a minimum amount out. That being said, there can often be a minimum balance that has to go across into that particular environment, and that can be very super fund-specific, but there are also maximums to be mindful of, aren't there?
Steven: Yes, that's right. So, there's a legislative maximum of up to $1.9 million in the current 23/24 financial year. It used to be a $1.6 million maximum, but that has increased over time. But funds usually have their minimum balance. So, for a lot, it's around the $20,000 to $50,000 mark. That's what they make you put into an income account to start with.
Ruth: A question that gets asked a lot, and I've fielded this quite a few times, particularly during retirement webinars and seminars, is picking up on the minimum drawdown amount. So the government have put minimum amounts that you must take out of the income account. As Steven has already said, it increases as you age. But what they haven't done is put a maximum on there. And it's important to remind our audience that there is no maximum on what you draw from the income account. So, if you want to live it up for the first 3 or 4 years and travel the world, you're not restricted in how much money you take from that particular income account. It's very much up to you. Most of us have a concern in retirement about longevity. We are worried that our money will run out before we've passed away. So we're a little bit scared of getting too excited in the early years with superannuation. But it reminds you that it is flexible, and you're not limited. And when I talk about not being limited to what you're taking out, I'm also referring to the ability to withdraw the lump sums from that product. There is no limit on how much comes out of the income account.
The final question we get is, what if I have buyer's remorse? What happens if I open up this income stream account or income product, and my spouse returns to work and suddenly a new flow of income comes through? I don't need the money anymore, or I've come into a windfall. What can happen, or how does somebody go about reversing it? And you've already touched on it, but give us more on the logistical surround and how that works.
Steven: There are many options here, and advice is good. Chat with someone to work out that it makes sense for you. But you could close that account and return it to the accumulation phase. You could get paid later in the financial year, or even decide to take that money out and pay it straight back into superannuation - into your accumulation account.
So, there are many reasons why you might do all of these things. There's a whole heap of strategies here, and it depends on what's right for you. You'd need to understand why you want to close this account and where the extra funds are coming from. So then someone can work out how to keep as much money as possible. Which is obviously your goal - boosting your super - but still making sure you get any advantages available to you that you may not be aware of at this stage of your life.
Ruth: Yes, so it's just about reminding people that nothing is for life here. This income account is reversible. You don't have to be too concerned if your circumstances change. We can change it back so that it suits you.
Now, finally, how do you open an actual account? If you're very confident in your situation, you're well-read on this, you're well versed, and you feel confident to make your own decisions on how much you want to draw down, how frequently you want to draw it. You're well versed in how you want to invest that particular money; opening the account is easy. There are a couple of channels. Number one, if you're registered for online access with your super fund, most funds will allow you to open one of these accounts online. So that's how simple it can be. You will have to verify things, such as your identity and the bank account you want to get paid into. But technically, it is something that you can self-serve on if you want to open it up yourself. Or give your super fund a call. Very often, the individuals in that Contact Centre can help you open an account over the phone. Often, you just like the old school pen and paper, and you want to fill out the application form and post it into the super fund or email it to the fund. And that, of course, is another option. So, there are many ways people can get one of these off the ground.
Steven: Absolutely. I helped my mum open her income account. It took us 3 minutes to do it online. But if you give us a call, we'll talk you through it and make it relatively simple.
Ruth: And finally, before we wrap up, I've said that a few times, but I'm finally at the end. And before we wrap up, the next steps, where do we go from here? So, if you've listened to this and you think, yep, this is me. I want to open up one of those products. I would rather do it this way or that way. Keep reading and keep asking questions. As Steven said, reach out and get advice. Talk to your super fund, first and foremost. Many superannuation funds might have advice and options for you to tap into. Many contact centre people would be able to answer most of those general type questions you've got anyway.
There are lots and lots of different tools available on websites. Hop on to ours if you want. We have some wonderful tools, including the Retirement Calculator and lots of different educational videos for people to learn a little bit more about super and, most importantly, about spending it.
Thanks for joining me today, Steven.
Steven: Thank you, Ruth. It's been a pleasure being here.
Ruth: So, listeners, I hope you found today's episode useful. We've got some more Q&A sessions coming up. If you have any questions, we'd love to answer them. Please send us an email at podcast@art.com.au.
Thank you so much for listening to Super Insider, and we hope you can join us again next time.
