Converting super into income
WHEN you’re ready to retire, you may find it practical to tap your superannuation as a steady income stream. But what does this entail?
Taking your super savings as an allocated pension is the most popular retirement strategy, primarily for tax reasons. You could withdraw your entire super balance as a lump sum and invest it outside of your fund but you’d be missing out on super’s substantial tax advantages.
Instead, taking an allocated pension provides an extremely flexible way of accessing your fund balance and allows you to benefit from the low-tax (or no-tax) environment of superannuation.
Putting your super into “pension phase” like this doesn’t prevent you from continuing to invest your capital. You can still make money as you withdraw.
Your regular payments can be adjusted to suit your lifestyle needs and lump sums can be taken out at any time. Depending on your fund, there may be some restrictions on withdrawing lump sums such as how many times per year they can be taken out. But the process is generally as simple as filling out a form.
You can receive pension payments fortnightly, monthly, quarterly, half yearly or yearly. You may change the frequency of the payments but an allocated pension will require that they continue on at least a yearly basis. You cannot “turn off” a super fund once a regular pension has been initiated. The money will be deposited directly into your bank account.
The pension ceases when your account reaches zero, so planning your payments is an important matter of strategy. The Australian Securities and Investments Commission offers an online calculator which can help you plan your withdrawals so your account doesn’t run out too early.
How much can I take out?
The amount you can take out depends, naturally, on the total savings you have accrued. If you have enough money and have fully retired, there is no maximum to the amount you may set for your regular income payments.
If you have not yet fully retired then you can still receive an allocated pension as part of a transition-to-retirement scheme but a maximum limit on your withdrawals will apply.
Minimums for super income stream payments are imposed according to your age. The older you are, the more you will be required to withdraw per year from your super. The following table shows the minimums that must be satisfied.
| Age of recipient | Minimum percentage of balance that must be withdrawn per year |
| under 65 | 4% |
| 65-74 | 5% |
| 75-79 | 6% |
| 80-84 | 7% |
| 85-89 | 9% |
| 90-94 | 11% |
| 95 and over | 14% |
Pre-retirement incomes
If you have reached the preservation age required to access your super but would like to continue working then you can take a pre-retirement income from your super in the form of a transition-to-retirement pension.
Pre-retirement incomes of this kind allow you to salary sacrifice into your super as you withdraw regular payments. Be aware, however, that not all super funds offer transition-to-retirement products
You cannot take more than 10% of your account balance with a transition-to-retirement pension and lump sums may not be taken out before aged 65.
