What should I do with my super when I retire?

Written by Ronald Pratap

on April 24, 2024

What should I do with my super when I retire? This can be complicated depending on your assets and responsibilities when you retire. A common myth regarding superannuation is that you can just take the money and deposit it in your bank account at retirement, which could significantly affect your tax bill or Centrelink payments in the future.

In reality, retirement is when the superannuation system truly shines. It is a new beginning, not the end of the story as you have quite a number of investment options and structure to choose from in a tax-free environment if you are over 60.

When we mention retirement, we mean achieving the conditions that will allow you to access your superannuation without restriction. Most commonly, this entails leaving a job after age 60 (even if you later return to work), retiring permanently after your preservation age, or reaching age 65 while still working.

So, what puts super in good position for retirement?

Tax-free status
When you transfer your super amount to a retirement income stream (commonly known as a pension), any future investment earnings and income are tax-free. This is known as the’retirement phase’ of superannuation, and it is distinct from the ‘accumulation phase’, which you contribute to while working. During the accumulation period, investment earnings are taxed at a maximum of 15%, with most major funds paying approximately 7% due to tax breaks and credits.

If you remove your amount and invest it outside of super, any earnings, such as dividends, interest, or rent, would be taxable. If you later sell an investment kept outside of super that has increased in value, the capital gain will also be taxable. The tax-free nature of the retirement phase in super contributes significantly to its appeal as an tax-free investment vehicle.

Another perk of tax-free status is that your fund may pay you a ‘retirement bonus’ when you retire and start an income stream. This incentive is a refund of money that the fund had set aside to pay capital gains tax on assets in your account in future.

When you transfer to a pension account and preserve the same investments, those assets are moved to a tax-free environment, eliminating the need to pay the tax. If you have a self-managed fund or have chosen’member direct’ investing, your assets can be transferred directly to the retirement phase, avoiding the capital gains tax that would otherwise be payable on selling them if you cashed out of super.

Super pension options
Account-based and non-account-based superannuation exist. Lump sum withdrawals and minimum yearly income contributions are allowed with account-based pensions. Annuities and GLI products, which do not enable lump sum withdrawals, can improve Centrelink Aged Pension by providing non-assessable income for a specified term or for life.

A super pension does not have to be your sole source of income when you retire. Most Australians are entitled for some form of Age Pension, if not immediately upon reaching the pension age of 67, then subsequently as their assets fall. Many people also make money from other investments.

The transfer balance cap was set by the government to limit the amount of money that one person can utilise to benefit from tax-free status. This ceiling limits the amount that can be transferred to the retirement phase and is presently set at $1.9 million. Any excess must be held in the accumulation phase or withdrawn from the super.

Investment management expertise
You should continue to have high-quality investing options when you retire from your super fund throughout retirement. Large funds have substantial fund management knowledge and offer investment menus for most investors. Many funds offer free advice to help you choose the best option(s).

After retirement, your fund can invest and grow more than you think. A common ‘rule of thumb’ is that 10% of your retirement income comes from savings, 30% from investment growth while working, and 60% from investment returns after retirement. The right leadership is essential with so much at risk.

Consider whether you could invest your balance if you left the system, and if not, whether you could simply find managed assets elsewhere without paying high fees.
If you have the skills, experience, and interest to choose your own investments, you could join a direct investment super fund or a self-managed super fund to keep your money in a tax-advantaged environment while taking the hands-on approach you prefer.

Make your money last
Unfortunately, there are numerous stories of people withdrawing a significant amount of money from their superannuation only to watch it disappear in a matter of years. When you’re not used to having easy access to a huge sum of money, spending can be enticing – just consider all of the sad lottery winning stories.

Opening a retirement income stream means you have an account set up to provide you a regular income, just as you did while working. This can help you see your balance as more than just a personal slush fund, but as a way to generate income for the rest of your life. Furthermore, an account-based super pension allows you to withdraw lump sums as needed.

Options to keep contributing
There are more choices than ever for older adults to continue contributing to their superannuation. Your donations must enter the ‘accumulation phase’, thus you must keep some funds in an accumulation account or start a new one if you wish to make contributions.

Contributing implies more money going into the tax-advantaged environment provided by superannuation, as well as the possibility of lowering income tax through concessions. For example, if you sell some investments outside of the system and earn a capital gain, a concessional contribution may help decrease your CGT obligation.

Non-concessional (after-tax) contributions are allowed for anyone under 75 with super balances below the transfer balance ceiling.
Before 67, anyone can pay concessional (pre-tax) payments, but between 67 and 75, you must work. After 75, concessional payments are no longer allowed unless your employer must pay your super.

Anyone over the age of 55(whether that be when you retire or keep working) can make a downsizer contribution if they sell their property after owning it for at least ten years and this will not go towards the contribution caps, providing you with long term tax benefits.

A recontribution approach can also help you save tax for beneficiaries even when you retire and can help those who inherit your super or transfer funds to your spouse’s account if they have a lesser amount.

Conclusion
The system is carefully structured to offer Australians with a sustainable and flexible source of retirement income, and the tax-free status is a significant incentive to use it.

Obviously, there are exceptions to any rule. Perhaps you will need to withdraw a lump sum from your superannuation to assist pay off a remaining mortgage, make necessary renovations, or for another crucial reason. If you still have some super, you should examine whether keeping it in the system is beneficial to you.

So if you are asking yourself ‘when can I retire?’ If you would like to further discuss what is best for your retirement planning needs or go through in details the strategies mentioned above, please reach out to our office on 02 9188 1547 and you will get through to our Oran Park or Norwest/ Baulkham Hills location, alternatively you can fill out the contact form and an Adviser from our office will contact you.








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Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

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