This was published 3 months ago
Opinion
I’m terrified of running out of super. How do I prevent this?
Paul Benson
Money contributorMy father was a policeman and when he retired he received a pension from the state government for the rest of his life.
I’m going to retire at the end of this year, but unlike my father, I have a large pool of superannuation savings that I need to ensure never runs out in my lifetime. I find this quite terrifying. Is there any way I can convert my super into something like my father had?
Running out of money is a common worry when people first retire.Credit: Simon Letch
Your worry is understandable, and you are certainly not alone in this train of thought. We are all living longer and longer, so it is important to ensure our savings last the distance.
The good news is that there is a product available to replicate what your father had. It is called a lifetime annuity. There are several options available within these products to make it fit for your purpose.
As a guide, at present, were you to shift $1 million of your superannuation savings into a lifetime annuity at 65 years of age, it would produce guaranteed monthly income for you of approximately $4450 per month, payable for life, and adjusted for inflation each year.
It is best to assume that once your funds go in, there is no getting them out. Some versions provide for a benefit upon death for a limited period of time, but as with your father’s government pension, the assumption going in should be that you will receive income for as long as you live, and once you pass on, the annuity is concluded.
There are several different types of annuities, the lifetime version being just one.
Most people who use annuities would not allocate all of their retirement savings to this investment vehicle, instead using annuities for the low-risk, capital secure portion of their retirement savings. This is because access to capital is significantly restricted.
I encourage you to obtain financial planning advice. Research done by Investment Trends found that the majority of Australians who received advice felt significantly more confident in their overall financial wellbeing. A well put together plan will almost certainly eliminate the stress you are feeling.
Without a nominated beneficiary, what tax is levied on the payment from a super account in accumulation mode paid to the estate of the deceased account holder?
There will likely be two components within your super fund – taxable and tax-free. As the name implies, there is no tax payable on the tax-free portion of your super when paid out as a death benefit.
The taxable portion of your super will have no tax withheld by the super fund if paid into your estate. However, should those funds then go to anyone not classed as a dependant, it is subject to the same tax as would have applied had they received the benefit directly from super. In most cases, this will be 15 per cent.
Dependants are a spouse or former spouse, children under age 18, or anyone who was financially dependent on the deceased person immediately before they died.
Our 17-year-old son has been working part-time eight hours per week and has the grand sum of $53 in super. What should he do to avoid his savings getting eaten by fees?
Super funds can charge no more than 3 per cent in fees for balances under $6000, and insurance is not automatically provided for those under 25 years of age with balances below this level. Your son is therefore well protected here.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
Expert tips on how to save, invest and make the most of your money delivered to your inbox every Sunday. Sign up for our Real Money newsletter.