Knowing what to do with your super at retirement can be confusing, but it doesn’t need to be complex.

This article goes through your options and explains what happens to your super at retirement.

What to Do With My Super at Retirement

Once you have retired, there are a number of things to consider with regards to your super and overall retirement planning. Do you leave it where it is in the accumulation phase? Should you convert it to a pension income stream? Do you change your investment options? Let’s look at the pros and cons of each.

1. Leaving Super in Accumulation Phase

While you are working, your super is held in what is called a superannuation accumulation account. A super accumulation account is able to accept contributions and the balance within the accumulation account is invested.

Once you retire, you are welcome to leave your super in an accumulation account. There is no requirement to withdraw it or convert it into an income stream.

The benefit of leaving super in an accumulation account compared to a pension account is that you are not required to make any withdrawals from the account if you do not need money to assist in covering retirement expenses.

The downside of leaving your super in an accumulation account is that you do not receive a regular pension payment that can assist in covering living expenses. Also, tax on super investment earnings is up to 15%, compared to 0% in a pension account.

2. Commencing a Pension Income Stream

Rather than leaving your super in an accumulation account, you may decide to use your super balance to commence an account based pension. A pension account cannot accept any super contributions but rather is used to draw down on and pay you an income stream.

The benefit of commencing a pension income stream with your super is that you can receive regular income payments that can assist in covering your retirement expenses. Also, all earnings, including capital gains, derived from investments within a pension account are received completely tax-free.

The downside of starting a pension is that you are required to receive at least the mandated minimum pension payment requirements from your account each financial year. The minimum withdrawal amount is based on your age and account balance.

What Should I Do With My Super at Retirement?

Most people at retirement will use their super to commence an income stream to provide them with a regular income to cover retirement expenses, while also benefiting from tax-free investment earnings.

Changing your superannuation investment option is also a consideration. Typically, during your working years your balance will be invested in more growth-oriented assets, which can provide greater returns over the long-term, but your balance will have higher fluctuations over the short-term.

While you are working, you are generally in a position to be more aggressive with your investment strategy for the following reasons:

• Time Horizon – Your super is invested without being touched, meaning you won’t be selling investments during short-term market corrections or downturns, giving your balance time to recover.
• Regular Buying – If there is a market downturn, your regular contributions are essentially purchasing investments at discounted prices.
• Higher-End Balance – While short-term risk is greater, long-term returns are also expected to be higher, giving you a larger super balance at retirement.

Upon retirement, you will likely be drawing down on your super balance, rather than contributing. Therefore, you may consider reducing the risk of your portfolio and aim for lower volatility, so that you can have greater certainty of how long your super will last throughout retirement.

Determining what to do with your super at retirement should be based on the particulars of your situation and what you would like to achieve.

The best investment you can make at retirement is to get professional financial advice to optimise your retirement plan, based on your objectives. Our financial planning firm, Toro Wealth, specialises solely in helping 50 to 70 year-olds optimise their financial position in the lead up to retirement. If you’re interested in learning more about our service and cost, click here.

Frequently Asked Questions

Here are some common questions I am asked about your options and what you should do with your super at retirement.

Can I Leave My Money in Super After I Retire?

Yes, you can leave your money in super after you retire. There is no requirement to convert your super into an income stream, or withdraw your super at retirement. You can simply leave your money in a super accumulation account after you retire.

Having presumably satisfied the superannuation definition of retirement, you can still have access to your super by making lump sum withdrawals at your pleasure. You may decide to make regular withdrawals into your personal bank account or ad-hoc withdrawals to meet expenses as they arise.

Can You Open a Super Account If You Are Retired?

Yes, you can open a super account if you are retired. Being employed or continuing to work is not a prerequisite to opening a super account. Despite being retired, you may have money outside super that you would like to contribute into super and maybe use it to commence a pension income stream.

How Does Your Super Work When You Retire?

When you retire, your super works the same way as it did prior to being retired. Your balance remains invested and contributions can continue to be made to the account. The only difference is that you are now eligible to make withdrawals from your super, or use your super to commence an income stream.

How Does Superannuation Work After Retirement?

Superannuation works the same way after retirement as it does before retirement. Your super balance will continue to be invested. However, you should notify your super fund once you retire, so that your balance will become accessible in the form of lump sum withdrawals or pension income.

How Much Super Can I Withdraw Each Year After Retirement?

The amount of super you can withdraw each year after retirement is only limited by your account balance. That is, there is no maximum limit on what you can withdraw. In saying that, most people tend to withdraw from super only what they need due to the benefits of continuing to invest inside the tax-effective superannuation environment.

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