Accessing Your Super Savings

You’ve worked hard, diligently building up your super balance and you’re looking forward to retiring early. To reach that milestone, you will need to understand when you can start drawing from your super.

The Australian government puts age and other restrictions on when you are able to withdraw from your super without it being taxed, to ensure that you use your super savings for retirement purposes.

Generally you can access your super:

• When you turn 65 (regardless of whether you keep working or not).
• When you reach your preservation age and permanently retire.
• When you reach your preservation age and start a transition to retirement income stream
• When you become permanently disabled or terminally ill.
• In some special circumstances including compassionate grounds and severe financial hardship.

When you reach ‘preservation age’ – which is the age you’re generally first allowed to access your super – it’s up to you to decide the right time to draw down your super. You’ll need to think about how the timing fits in with your financial situation and personal circumstances.

For example, you may pay tax if you withdraw your super before you turn 60, either via an income stream or as a lump sum, although some of it might be tax-free. After the age of 60, your super withdrawals are usually tax free.¹

Working out your preservation age

Your preservation age depends on your date of birth. When you turn 65, you can generally access your super regardless of whether you retire or not.

Source: Australian Taxation Office (ATO) website.

Accessing your super through a transition to retirement (TTR) strategy

When you reach your preservation age, you can access your super as a transition to retirement pension without having to retire. TTR strategies work in one of two ways:

1. Work full time while your employer continues to make contributions into your super account. You may also salary sacrifice into your super. The amount you sacrifice is then supplemented by a transition to retirement pension drawn from your super. This could lead to the following tax concessions:
2. transition to retirement pension payments may be taxed at a lower tax ratethan the salary they have replaced and
   b. earnings within your transition to retirement pension balance are tax free, unlike regular super where earnings are taxed at up to 15%.
3. Cut down your working hours and draw on your super through a transition to retirement pension to supplement your lost income.

There are rules and limitations in relation to TTR and it may not suit your individual circumstances as the tax rules can be complex. It’s a good idea to seek professional financial planning advice from a financial planner to help you decide if it’s the right choice.

¹ Tax may still apply to withdrawals after age 60 from untaxed funds such as the Commonwealth Government Sector Super Scheme

It may be easy to forget the 9.5% that is automatically paid by your employer into your super fund every pay check. However, it’s your money and will play an important role in your financial future. Your super should be one of the biggest assets you accumulate in your lifetime.

Additionally, super is a tax-effective way to save for your retirement period; which may be longer than you think.

Why should you care about super?

You’ll probably need more money than past generations to fund a longer retirement, with Australian life expectancies increasing all the time. And improvements to health care and living standards, your long retirement is also likely to be an active one.

Life expectancies at birth are currently 80.6 years for men and 84.1 for women[1]. The Australian Government Treasury’s recent Intergenerational Report projected that they’ll increase to 95.1 years for men and 96.5 years for women over the next 40 years.

This is where super comes in. It reduces the chance that you’ll need to rely on the Age Pension when you stop working.

How does super work?

If you’re employed, your employer will generally make Super Guarantee (SG) contributions. This means that 9.5% of your salary goes straight into your super account – a fund that’s chosen by your employer or a fund of your choice.

Super funds will invest your money, together with the money of other members, in a range of investment types, also known as asset classes. The aim is to grow it over time.

How is super tax-effective?

All investment earnings within super are taxed at a maximum of only 15%, which is likely to be lower than your personal tax rate. This means your savings in super could grow faster than your savings outside of super, depending on how the investments within your super perform.

When can you access your super?

Even though it’s your money, you generally won’t be able access it until you retire after reaching your ‘preservation age’, which is between 55 and 60 depending on your date of birth.

In some extreme circumstances, you may be able to access your super before your preservation age. These include permanent incapacity, severe financial hardship and terminal medical conditions.

You can also have limited access to your super via a transition to retirement income stream once you reach your preservation age, even if you continue to work.

Do you have enough super to maintain your lifestyle in retirement?

The answer will depend on how long you will live for in retirement and the kind of retirement lifestyle you’re aiming for.

As a guide, the Association of Superannuation Funds of Australia (ASFA) regularly releases a Retirement Standard that breaks down how much retirees might need annually to fund ‘comfortable’ and ‘modest’ lifestyles. For the June 2015 quarter, the figures for a comfortable lifestyle are $42, 861 for singles and $58,784 for couples. This means that singles will need a lump sum of $545,000 at retirement and couples will need $640,000[2].

Want to know more?

Talk to a BlueRocke financial adviser, call us on 1300 71 71 36.

[1] Australian Government Actuary life tables

[2] Assumes 25 years of retirement from age 67. All figures in today’s dollars using 3.75% AWE as a deflator and an assumed investment earning rate of 7 per cent. They are based on the means test for the Age Pension in effect from 1 January 2017.