Understanding when and how to access your superannuation is essential for making informed decisions about your financial future and ensuring you’re prepared for a secure and comfortable retirement.
Superannuation is a key component of your retirement plan. Knowing when and how you can access your superannuation is crucial to making informed decisions about your financial future. In this post, we’ll walk you through the key points you need to know about accessing your super, whether you’re retiring, continuing to work, or encountering special circumstances.
When can you access your super?
Your superannuation is generally accessible when you reach a specific milestone called your “preservation age” and decide to retire. The preservation age varies depending on your birth date:
- Born before 1 July 1960: Age 55
- Born 1 July 1960 – 30 June 1961: Age 56
- Born 1 July 1961 – 30 June 1962: Age 57
- Born 1 July 1962 – 30 June 1963: Age 58
- Born 1 July 1963 – 30 June 1964: Age 59
- Born after 1 July 1964: Age 60
Additionally, you can access your super when you reach age 65, regardless of whether you continue to work. However, there are other options if you’re not ready to retire completely or if you find yourself in a situation that might allow early access.
Transition to Retirement (TTR): Accessing super while working
If you’ve reached your preservation age but aren’t ready to retire fully, you might consider a transition to retirement (TTR) strategy. This approach allows you to withdraw some of your super while you continue working. It’s particularly helpful if you want to reduce your working hours or if you’d like to boost your super savings before officially retiring.
Case study: Joanne’s transition to retirement
Take our client Jo, who just turned 60. She decides to scale back her work hours as she approaches retirement. With her income dropping from $50,000 to $30,000 annually, Jo moves $155,000 from her super into a TTR pension. She withdraws $9,000 each year, tax-free, to help supplement her reduced income, allowing her to ease into retirement without a significant lifestyle change.
Defined Benefit Funds: Special considerations
Members of defined benefit funds may have different rules regarding super access. Often, these funds allow you to start receiving benefits as early as age 55, regardless of your birth date. The specific eligibility criteria can vary from one fund to another, so it’s important to consult your fund provider to understand your options.
Account-Based Pensions: A flexible income stream in retirement
An account-based pension is a popular way to access your super once you reach your preservation age. This option provides a flexible and tax-effective income stream throughout your retirement. Here’s how it works:
- Regular income: You receive a steady income, but it’s important to note that this income isn’t guaranteed for life. The payments continue as long as there are funds in your account.
- Flexibility: You decide how much of your super to transfer into the pension phase, the frequency of payments, and how your super is invested.
- Minimum withdrawal: The minimum amount you need to withdraw each year depends on your age. For example, those aged 55-64 need to withdraw at least 4% of their account balance annually from the 2023-24 financial year onwards.
Remember, your account-based pension’s value can fluctuate with market performance, and there’s no certainty that your super will last throughout your retirement. Additionally, this pension is included in the income and assets tests, which could impact your eligibility for the Age Pension.
Accessing your super early: Special circumstances
There are certain situations where you might be able to access your super before reaching your preservation age. These circumstances are tightly controlled and include:
- Incapacity: If you’re unable to work or need to cut back on hours due to a medical condition.
- Severe financial hardship: If you’ve been receiving Commonwealth benefits for at least 26 weeks and are struggling to cover your basic living expenses.
- Compassionate grounds: Such as needing funds to cover unpaid medical bills, modify your home or vehicle due to severe disability, pay for funeral expenses, or make a loan repayment to avoid losing your home.
- Terminal medical condition: If you’ve been diagnosed with a terminal illness or injury.
Before accessing your super early, it’s vital to understand the potential impact on your retirement savings. Consulting with a financial adviser can help you explore all your options and make the best choice for your situation.
Using super to buy your first home
If you’re saving for your first home, you might be able to access super contributions through the First Home Super Saver Scheme (FHSSS). This scheme lets you make voluntary contributions to your super, which you can later withdraw to help with your first home purchase. Make sure to check the eligibility criteria and savings limits on the Australian Taxation Office (ATO) website.
Plan ahead for a confident retirement
Knowing when and how you can access your super is crucial to designing the best retirement possible. Whether you’re approaching retirement, considering a transition to retirement strategy, or dealing with special circumstances that might allow early access, it’s important to seek professional financial advice. This will help you make well-informed decisions for a secure and comfortable retirement.
If you have any questions about accessing your superannuation or need assistance with retirement planning, feel free to reach out, we’re here to help you navigate your retirement journey with confidence.