Using your super when you retire
Join Sunsuper's Dream Team as Chief Economist Brian Parker puts Head of Advice and Retirement Anne Fuchs in the hot seat to discuss why it's never too early to start planning for your future, and explain when and how you can most tax-effectively access your super pot when you retire.
Voice-over: Welcome to The New School of Super, a fresh look at money matters, your super, and the things that could affect your financial dreams now and in future with Sunsuper's Chief Economist, Brian Parker and Head of Advice and Retirement, Anne Fuchs.
Anne Fuchs: Hello and thanks for listening. Welcome to The New School of Super, Sunsuper's podcast series covering investment markets, money matters, and your superannuation, and most importantly, helping you achieve your retirement dreams. With me is my friend, the Chief Economist of Sunsuper whose name is Brian Parker. This man knows everything when it comes to investing. He is a source, font of wisdom that we rely on heavily here at Sunsuper. It's great to see you Brian.
Brian Parker: Thanks Anne. Good to be with you again.
Anne: Now, I know you know who I am, but I probably should introduce myself to our listeners. What do you think?
Brian: Every chance really.
Anne: Every chance. So my name is Anne Fuchs. A little bit of gem for our listeners. Fuchs means fox. There's a bit of tidbit for you today. I head up advice and retirement here at Sunsuper. The team and I, we are passionate about helping our members fulfill their retirement dreams, and I would argue the most important enabler for that is actually good quality financial advice.
Brian: Well, thanks very much for that Anne. Today we're actually going to flip our normal podcast schedule, so yes.
Anne: Oh, we're getting crazy.
Brian: We're going a bit crazy. I am actually going to do the interviewing for a change. I'm going to actually ask you some questions. Now in particular today we're going to delve into the whys and hows of using your super balance when you retire, and I'm going to look to you Anne to give everybody listening the straight answers on how far ahead people should be thinking about retirement and what they should do now to make sure the lifestyle they want in retirement is going to be delivered.
Brian: Now before we start, we do need to go through our usual disclaimer. I need to let everyone listening know that what we're going to talk about today is general information only. Anything we say today can never possibly take into account your particular circumstances. You need to consider your own circumstances and think about getting personal advice before acting on anything we talk about today. You can also get a copy of our product disclosure statement from our website, or by calling us on 13 11 84.
Anne: Look, talking superannuation and retirement particularly to younger people but I would actually argue for most Australians is something they really don't want to talk about. I remember when my grandfather retired at 65, people weren't living, particularly men much longer after that. Where now men are living to 84, 87, and the kids that are being born, the babies being born now will well and truly make that, they'll all be getting a letter from King Charles probably and Queen Catherine.
Brian: That's going to be really a frightening thought. That's all good points Anne. In fact, I've always felt the old adage was that people start to pay attention to their super when the balance gets to either 100,000 or a year salary whatever comes first. But when should people be starting to really think about their super and think about retirement? At what point should they really start planning for their retirement?
Anne: There's a really disturbing statistic Brian that people in their 30s, early 30s in particular, the average man has about $43,000 in their superannuation and the women only have $33k. Probably in our 30s, that's when a lot of us have interrupted career breaks because we're having families, so that situation and that inner quality is then compounded again and again, which is why we're seeing more women retiring in poverty and women retiring with 50% of the balances as men.
Anne: So my argument would be that particularly for women, they need to be taking a much active interest as early as possible, but of course men too. I think I speak to all of our listeners that are feminists out there that if they are calling themselves a feminist and they believe in equal opportunity, then you can't assume that in superannuation you're getting a fair go and you need to do more in terms of planning for your retirement.
Anne: I think culturally too about superannuation Brian, and when our members call us, you're spot on, they generally only call us when their balance is of a decent size or they're getting close to retirement. The longer you leave it, my analogy is it's almost like putting on sunscreen. The early you put on sunscreen, the better condition your skin will be in. If you start putting sunscreen on in your 40s, the damage is done. If you're not paying attention to your superannuation until you're late 40s, early 50s, there is only so much a financial advisor can do. You have a couple of choices, you work longer, you invest in more risky assets, and put out your retirement recognizing the risk attached to that, or you die earlier. None of these are particularly attractive options for most Australians.
Brian: Yes, right, Anne, it really just highlights just how important financial advice is, and over many, many years of talking to members and talking to clients of financial advisors, I really haven't spoken to anyone who said, "Gee, I wish I would have come here later." I've spoken to plenty of people who've said, "I should've come here a lot earlier," but also people who've said to me, client seminars or member seminars, "Gee, I should've brought my children or brought my grandchildren along to listen to this."
Brian: Okay, Anne, so talk to us about when people can actually get their hands on their super and how they go about it?
Anne: This is really important when you think about the life expectancies I was mentioning earlier that we're living longer. So the government has a real risk on their hands. They can't afford to pay everyone a pension if we're all living longer. So they've got to make some hard decisions. They've got to balance a budget and so they're looking at what is the right preservation age now and into the future. As it stands it's 56, but it's increasing. This is what our listeners need to understand, that if you're born after the 30th of June in 1964, it'll be 60 for you.
Anne: I as almost a 43-year-old I'm very well prepared that it might be 70 by the time I retire, which is all well and good if I work in a white collar job and I'm not doing physical labor. But many of our members who are listening would be in quite physical roles, whether they're in hairdressing, or laboring, and that has a much bigger impact for our members. I encourage our listeners to think about, "Well, if that preservation continues to go up, what are my options in terms of planning for retirement," and picking up the phone and speaking to us earlier.
Anne: One of the things Brian I probably want to point out to our listeners is that they probably don't understand that when they retire, if they're getting good quality advice, they can set up an income account in retirement. Once the money reaches preservation age, they can roll into this thing that a lot of people call in everyday society a pension and they can use that to draw a tax-free income in retirement.
Brian: At the end of the day I mean superannuation is meant to provide a long-term income stream in your retirement, and your point about that people do tend to look at their superannuation balance and then just kind of take it out, and depending on the size of the balance and what sort of debts for example you might retire with, we do worry that a lot of people take that balance out and then either spend it on a retirement holiday or pay down a mortgage or whatever, but they're not left with much left to actually fund their retirement income. I think it's important for people to consider that when you do retire, the advantages of leaving the money in the system, leaving the money invested so that it can continue to grow.
Anne: Yeah, it's working for you.
Brian: Absolutely, because we all hope to live a hell of a long time.
Anne: Well, and I'd also point out too that if you're keeping it in that superannuation product as opposed to moving it across into either a transition to retirement which we can touch on our retirement income account, you're paying tax unnecessarily within the fund, where if you're moving it across to a retirement product you're in a tax-free environment. And I don't know any Australian ever that wants to pay more tax than what they have to pay.
Anne: There's a lot of people too if you think about retirement and what the new paradigm is that maybe retirement isn't just sort of starting getting out the knitting needles or the golf clubs, but you might scale back your work, you might do a different type of job, you might pursue a different career, open up a coffee shop or do tutoring if you were a teacher, whatever that might be, and you can actually set up what's called the transition to retirement account when you reach preservation age. So you can keep contributing to super and also draw an income which is a really tax effective way of accessing your superannuation once you've hit that preservation age.
Brian: Okay. And what about those people who want to have a more traditional retirement, they want to be working one day and not working the next, how do they get access to their super and what should they do?
Anne: That's a really good question Brian. For those people that want to pack up their desk, go home, and that's it, put their feet up and relax and enjoy their retirement, they have a couple of options available to them. If they meet that preservation age I spoke about earlier and they really are retired, then they can look at a retirement income account. Or if they hit age 65, that's also worth noting, there are people that will continue to work full time after age 65. They can also set up a retirement income account.
Anne: The thing to note there is a retirement income account and I did touch on it before, but I cannot stress it enough why this retirement income account is so great for anyone that meets that preservation age or retirement age is because they can be investing with us, with our fabulous investment team, having all of the benefits associated with that, drawing an income stream to fund their lifestyle, their holidays and all of that, and there is not a cent of tax being paid. Now if that is not a compelling opportunity and something to consider. But sadly I have to say a lot of Australians do take the approach that they either get to retirement age or preservation age and they pull their money out and put it in the bank, and we all know what interest rates are doing. Are they doing well or not so well?
Brian: Lots of things with it, bank interest is ... Even pre-tax bank interest is pretty disappointing at the moment.
Anne: Pretty dismal, so not doing much. And if you've got that longevity risk of living to 80, 90, 100, you've got that money's got to be doing something, doesn't it Brian?
Brian: Yeah, absolutely, we all hope to live for a long time. So while we want to be somewhat cautious in our investment approach, but we also want to make sure that our assets will hopefully live as long as we do.
Brian: Okay, so we talked a lot about the need for an income in retirement. We talked about longevity. We talked about transition to retirement. But for those members approaching retirement, what should they do now?
Anne: Do not go to doctor Google would be my advice. This is a serious matter. Your health, your family, and your financial security are the three most important things. You will always go and seek professional advice when it comes to your health, and I think, I strongly believe the same applies to money, and at Sunsuper you can. We have great tools and calculators and lots of information on our website if you want to self-educate. I should point out too that there is lots of information particularly on the MoneySmart website that ASIC have. But I think you cannot beat talking to somebody either face-to-face or over the phone, and depending on the complexity of your situation because the reality is this concept of retirement is an emotional thing, it can create a lot of conflicting emotions of joy and fear and having that human interaction is important.
Anne: Sunsuper have a team of advisers that can provide our members advice about their assets invested with Sunsuper. The sooner you do this, think of I'd go back to the skin analogy Brian. We all are slathering sunscreen all over our children from the moment they leave the house, and maybe we can make generational change here because when I was a kid growing up in Brisbane, you were growing up on the Gold Coast, I don't recall my parents' hysteria if I left the house without sunscreen on. But these days kids know they've got to put on sunscreen. Maybe we can create generational change in superannuation and get the younger people more engaged and buying into this investment that they own. I would encourage the older members listening to talk to your children about it, have a look at the statement with them, play around with the calculator, and again, pick up the phone. We've got a great team here to help you.
Brian: Thanks Anne. Thanks everybody listening for their time. We hope to join you again in the next podcast.
Voice-over: This has been The New School of Super. For information and inspiration to help you plan your future, manage your super, and enjoy your retirement visit sunsuper.com.au/thedreamproject, or if you've got a superannuation or investment question you'd like Brian and Anne to discuss, then get in touch at newschoolofsuper.com for it to feature in one of our future New School of Super podcasts.
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