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Withdrawing your Superannuation Fund

Why it’s a bad idea to withdraw your entire Superannuation fund in one lump sum

more superannuation is being withdrawn out of retirement accounts in lump sums instead of being taken out as a steady income streamOver the past two years, more superannuation is being withdrawn out of retirement accounts in lump sums rather than being taken out as a steady income stream.

Australian Prudential and Regulation Authority figures show in the 2014/15 financial year account holders withdrew a whopping $31.4 billion in lump sums as opposed to $29.5 billion being taken from accounts as a pension.

Also in 2013/14, lump sum withdrawals were higher than super savings taken as an income stream.

However, Australians are being warned that withdrawing your entire superannuation savings in one hit can be a bad financial move, particularly for those with larger balances.There are many things to consider before withdrawing all funds at once.

Australian Institute of Superannuation Trustees’ chief executive officer Tom Garcia advised that taking a lump sum may be the optimal choice for those retirees with small balances.

Furthermore, he explains that many retirees with small balances take a lump sum, but use it pay off the mortgage or invest in a term deposit.

When comparing taking a lump sum versus an income stream you need to consider a range factors, including the size of your super balance, any investments or debts outside super and tax incentives.

AIST research found that around one-quarter of lump sums are used to pay off home loans or make home improvements.  While another 20 per cent are used to pay off debt or a vehicle.  But Australian Super’s group said they had seen a shift away from members taking out their superannuation savings in one lump sum.

Intrust Super chief executive officer Brendan O’Farrell said many members remained unclear of the benefits of account-based pensions.  Explaining that account-based pensions provide members with some financial discipline while providing regular payments while enjoying the tax-free earnings in pension phase.


Source: Original article can be viewed here

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