You may be able to take your superannuation as a lump sum payment when you retire. This is usually tax-free from age 60.
How a superannuation lump sum works
Depending on your fund’s rules, you may be able to withdraw some or all of your superannuation (super) as a lump sum. If so, you can take all your super in one go, or as several lump sum payments.
Ways of using a lump sum include:
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clearing debt (for example, paying off your mortgage)
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investing for your retirement
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paying for something you couldn’t previously afford (such as home improvements)
Getting your super
You can get your super when you retire and reach your ‘preservation age’ — between 55 and 60, depending on when you were born.
Getting the Age Pension
What you do with your lump sum after you withdraw it may affect your eligibility for the Age Pension.
To find out how a lump sum could affect your entitlements, talk to a Services Australia Financial Information Service (FIS) officer.
Financial and tax advice
Get financial advice from your super fund or from us on Phone 02 9548 3703 before withdrawing your super.
The Australian Taxation Office (ATO) website has information about how your super payout is taxed.
Pros and cons of taking a lump sum
Consider the pros and cons to decide if taking a super lump sum is right for you.
Pros
If you take a lump sum, you can:
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pay low or no tax on a lump sum withdrawal up to $215,000, or if you are age 60 plus
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reduce or clear debts which can save you money in the long run
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treat yourself to something that wasn’t affordable before, such as home renovations, travel or a car
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withdraw money as you need it, in several lump sums. This could reduce the tax you pay and maximise your Age Pension, depending on your age
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invest the lump sum outside super, and have access to your money for your short to medium-term needs
Cons
However, you may:
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pay more tax on interest from investments or deposits
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pay tax on capital gains if you buy and sell property
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have a lower future income if you spend a portion of your super now
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be tempted to splurge or overspend so your money runs out faster
Investing a lump sum
If you decide to invest a lump sum, you need to consider your financial goals, investing time frame and risk tolerance.
See how to invest to explore your options. We can provide advice to ensure your investment is appropriate for your goals.
Using a mix of retirement income options
You don’t have to take an all or nothing approach with your retirement income.
Taking some of your super as a lump sum could give you access to money for planned activities. For example, paying for a holiday or medical expenses.
You could keep the rest in a retirement income stream, to give you a regular payment you can rely on. Income stream options include an account-based pension or annuity.
Case Study
Alisha uses a mix of options
Alisha is 65 and is retiring with $330,000 in super. She decides to take out a $40,000 lump sum to pay for home improvements.
She transfers the rest of her super to an account-based pension. By investing $290,000 in an income stream, Alisha will receive regular income payments on top of the Age Pension.
She still has the flexibility to withdraw another lump sum in the future if she needs to.
Call us on Phone 02 9548 3703 if you’d like more information on this topic.
Source: Moneysmart.gov.au
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/super-lump-sum
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
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