Let’s consider some of the features of both options; a pension or income stream, compared to a lump sum payment.
While working, you’re encouraged to plan your retirement and always reminded on whether you’re putting enough away to maintain a standard of living. Retirement Planning as well as professional advice are really important to get a general idea of the amount you’ll need to fund your lifestyle and to make sure you’re doing it properly.
The bigger decision comes in when you become eligible to access your superannuation. You have these options; invest it in a pension or income stream, take a lump sum payment, or a mixture of both.
Invest in a pension
When you invest in a pension, your super will be paid out as a regular income stream. At the same time, the balance remains in your super fund earning investment returns.
Before taking this option, it’s important to understand the tax rules that come with it as investment earnings within your superannuation are generally tax free when you hit 60. It’s most likely that you’ll pay less tax when you invest in a pension.
This option can also get rid of the temptation to splurge because you need to budget and manage a regular income, just like when you’re working.
Take a lump sum payment
Another common option when you plan your finances in retirement is to take your super as a lump sum payment. This is practical if you have debts to pay or purchases to make to live comfortably. However, this may also temp you to splurge so you need to have a specific plan on how to use the fund.
One of the benefits of taking a lump sum payment is the liberty to invest it however you like. Although lump sum payments are usually tax free after 60, the earnings on investments outside of superannuation may come with tax, so make sure to consider this.
Also, your investments could impact your eligibility for government benefits, so better to check with Centrelink for assets test limits.
How to decide
When it’s time to plan your retirement income, always look at what you’ve got in your super and the investment options available. First, understand where you are financially, and then perceive where you want to be.
Because most funds don’t charge huge entry or exit fees nowadays, you need to set goals and focus on finding the right solution for you. A combination, investing in a pension while taking some lump sum payments, is also possible as long as it fits your lifestyle and financial needs.
It’s better to consult a financial advisor to make sure that you can afford a comfortable retirement.
Use the ASAG Reverse Mortgage to supplement your pension or super
The ASAG team supports our Australian customers who are about to enter retirement or already in retirement by offering our equity release solutions to help boost their standard of living. One in particular is our reverse mortgage.
One of the benefits of the ASAG Reverse Mortgage is to help improve your retirement income stream by allowing you to access the wealth in your home without ongoing payments and selling. The loan is paid off when you permanently leave your home, either you downsize, move to residential care, or pass away. The funds can be used for any requirements you see fit, which may include a supplement to your pension or super as part of your Retirement Planning.
Our team is happy to assist you with further details about how our reverse mortgage works. Our lines are open on 1300 002 724 and at firstname.lastname@example.org, so feel free to contact us or send your enquiries about our equity release solutions.
You may also get started by using our tool below to assess your available equity.