The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.
Hi and welcome to this special broadcast. My name is Joshua van Gestel, the National Education Manager here at Sunsuper.
We know that we continue to find ourselves in times of uncertainty and we know that that makes many of us feel uncertain about the choices we have to make, especially in regard to our finances. But what we're wanting to do is actually help you in these times of uncertainty to be retirement ready.
To understand the choices that you have, regarding your retirement. Choices around the income or lifestyle that you'd like. Choices around the investments that you'll have leading into and throughout retirement, as well as the choices that you have regarding how you want to actually use your super in retirement.
I'm joined in this broadcast by two of my colleagues, Ruth Weaver, our Education Specialist here at Sunsuper, as well as Justin Short, one of our Senior Financial Advisers. Together we are going to help to make those areas of uncertainty a bit more certain, to let you know the opportunities and the choices that you have. We know what we discuss may raise questions for you, so we invite you to use the chat bubble that is on your screen to post any questions or comments that you may have throughout this broadcast. We're able - we will respond to those and we would also ask you that you include your email address. That will allow us, if we don't get to answer your question in this broadcast, to come back to you in the coming days with a response.
We also acknowledge though that much of what we cover may actually mean that you want to discuss things further in regard to your own situation. So on your screen you'll also see an "i" icon and that will allow you to put in some of your information and someone will call you back. One of our advice team will be in contact to discuss your situation and needs further.
Please be aware that this presentation and everything that we're covering, including anything that might come in Q&A, is of a general nature only. We don't know your personal circumstances. We don't know your personal situation. So, what we're doing here is discussing broad concepts for you to consider and to explore further. And, again, as I said, we will invite you to engage with us, to reach out to us, if you'd like us to actually assist you with those questions in more detail in regard to your personal needs. We also invite you to give us a call on 13 11 84 or to visit our website for further information.
At Sunsuper we see ourselves as a superannuation for life. Looking after our members' savings as they're working and heading towards retirement, but also assisting them in the choices and opportunities they have in using those savings as they move into and then are living throughout their retirement, and many of these choices and opportunities we will be discussing with you in this broadcast.
But there are probably two questions that we would ask you to start with. The first is when and how do you want to retire? What is your plan for your retirement? What are the choices that you do want to make in regard to your retirement? But then also think about what is possible. Also think about the impacts and implications, whether that be through recent events or whether that be in the years ahead of you.
What we're going to do is discuss now those areas where you have choice presented to you. Those times where you have choice presented to you and these times allow you to better understand when you might need to be ready for retirement or when you can choose to be retirement ready. Ruth?
Thank you, Josh. Josh is correct. There will be lots of choices that you face on your path to retirement and there's going to be lots of things that you can control throughout that path but there's also going to be things that you actually cannot control and that will be things like the age at which you will reach certain milestones. Now, you may not be able to control what age you reach those milestones, but you will be able to control whether or not you use it as an opportunity to help you.
Now, that first milestone you reach will be an age that we call preservation age. Now, preservation age, in its simplest terms, is essentially the age at which you can start to access your superannuation. If you're still working when you reach preservation age, you will be able to access some of your super, and if you've already retired when you reach preservation age, you will be able to access all of your superannuation.
Preservation age has been moving slowly from the age of 55 to 60, currently sitting at 58. Now, 60 is an important age for a couple of reasons. Firstly, 60 is the age that preservation age eventually will land, and for most of us our preservation age will be 60. Sixty is also an important age because once you get to the age of 60, regardless of how or in what circumstances you're withdrawing your superannuation, it will actually be tax-free.
And another important implication of turning 60, and it's quite relevant, particularly in these uncertain times, is that if you have terminated an employment arrangement at the age of 60, and you may very well have moved on to another employment, you have actually unlocked your superannuation. So, in other words, changing employer at the age of 60 or beyond allows you full access to that superannuation, and that's a rule that many people are not aware of and very relevant in today's environment where we've seen people lose jobs.
Sixty-five is another interesting age because at 65, regardless of whether you're working full-time or part-time or retired, you will have 100 per cent tax-free access to your super in whatever way you want. The next age is 67. Now, 67 is the age that age pension is moving towards and essentially 67 is the age where you will be able to approach CentreLink and see if you are eligible for some government support during your retirement years.
Now, I've mentioned four ages here, none of which you have control over. The one age I haven't mentioned that you do actually have control over is, of course, your retirement age and this is one of the most important choices you will be faced with in retirement. Josh mentioned there at the beginning that there can sometimes be a difference between when we want to retire and when we can actually retire, and the purpose of good financial advice is to make sure that we narrow that gap between when we want to retire and when we can retire so those ages are as close as possible.
Now, even the best of plans can come undone, and we certainly have seen that happen in 2020. Many Australians, including Sunsuper members, are having to go back to the drawing board and revisit their financial plans. Things have changed. For example, your financial plan may have been built around the assumption that you would continue working at a certain level of income for the next five to 10 years, and we know that that has been disrupted for many people.
Also, things like a change in your balance. We have seen mass volatility in share markets and for some people this has meant to deepen their superannuation balance, as well as problems outside of superannuation. Some people may feel the need to work a little bit longer to have enough time to build that asset base back up again.
Now, in some situations it may actually have provided opportunities, unforeseen opportunities. Perhaps you were faced with a redundancy, which meant you were retiring a little bit earlier than you originally planned, but also not forgetting to go back and revisit whether or not you are now eligible for things like age pension, and whether there has been a change in that eligibility.
Now, Justin, I think this could be a good time to turn to you. I'm interested to know, based on the fact that you have spoken to so many Sunsuper members over the past six months, what are the concerns and the challenges, and even the opportunities, that you in the Financial Team are talking to Sunsuper members about at the moment?
Yeah, thanks, Ruth. Look, the last 12 months have certainly been challenging for a lot of Sunsuper members. We've seen volatility over the last 12 months and members are asking themselves, can they still afford to retire? They're reaching out to us and what we're doing with them is obviously looking at their situation, looking at what they're wanting to achieve in retirement and seeing if that's still achievable, because for a lot of people they can still retire.
For some people, as you mentioned, their situations have changed. They've been made redundant. They're retiring earlier. So that means that then, of course, they may be having to rely on the government support more in the future, they may need to lower their expectations, they may need to boost their super to try to get them up to a certain level of income in retirement. There are other people, of course, that have had reduced work hours. Okay. So they're having to now work longer potentially, or look at a transition to retirement strategy, in the lead up to their retirement.
Thanks, Justin. Now, I think a really important part of financially planning for your retirement is getting a good understanding of where the income is going to come from when you're retired and we know for a lot of Australians, in fact 80% of Australians who are currently retired, are generating a lot of that income from the government aged pension, and that will form a really important component of your income once you've retired.
Now, you might have other assets like, for example, an investment property, which may also generate some income, and it's important that you factor that into your equation. Now, we do know that retirement is no longer for life and sometimes people who retire do like to work at an ad hoc basis and Josh is going to talk about CentreLink and the implications of that in a moment. So it is important that you're understanding the balance between receiving government pension, maybe assets outside, maybe you'll work a little bit as well, and once we've looked at those three elements we will be able to determine the role that your superannuation would play.
Now, we know for most Australians the age pension will do a lot of the heavy lifting and the role of superannuation will be to lift that lifestyle above the age pension. One of the most common questions that we get in superannuation is: How much superannuation do I need? What balance should I have? And unfortunately, it's the one question that we are not able to answer. It will depend on so many factors.
Even thinking back to the last graph we looked at, will you have income from other assets? Because if you do, that will take the pressure off your superannuation. Will you continue to work at an ad hoc basis? But going back to the beginning, there's one main question that we all seem to struggle with when we're retirement planning, and it's the fundamental question that we have to start with and that is: What kind of a lifestyle do you want to live when you're retired? What will your day-to-day expenses be? Okay.
Another important consideration, when trying to figure out how much super you need, is whether or not you will be retiring as a single person, or if you're fortunate enough to retire as a couple who were both able to accumulate superannuation. Again, that will take the pressure off how much super you need. Don't forget to factor in your other investments and assets. Okay.
The old age question around "What age do you plan on retiring?", will creep up again and again because the length of time we need the income to generate will very much determine how much money you need to sustain that. So as a starting point, when we're thinking about the lifestyle that we want to generate in retirement, there has been a lot of research done on this and some of that research that we've done will help our members to bracket where exactly current Australians are sitting and how they regard that as a particular lifestyle.
Now, I mentioned the age pension is the starting point for many people when they're factoring their income for retirement. Now, the age pension, as I said, it will do a lot of the heavy lifting for you in retirement, but it's not a lifestyle that's going to give you a lot of flexibility and it will mean that you have endure a lot of very strict budgeting. Most people want better than that. Most people want to ensure that they can live beyond the age pension levels.
At Sunsuper we've broken down lifestyles into four different categories and what we know is when people are presented with these different lifestyles, they tend to want to land somewhere between comfortable and doing well. In other words, a couple will look at these lifestyles and suggest that $61,000 a year is considered as doing quite well in retirement, and that will give you freedom for things like having private health insurance, maybe travelling, eating out when you need. It gives you a lot more choice.
So if you're looking at this today and you're quite attracted to that lifestyle of perhaps doing well, how does that equate to a superannuation balance? There has been a lot of research done on this, and please let me assure you that these numbers are based on a lot of assumptions and they won't be relevant specifically to you, but what we do know is that an individual who is retiring at the moment, who wants to sustain an income of $45,000 odd a year, in other words doing well in retirement, will need a superannuation balance of over half a million dollars to do that.
Now, that's assuming that that individual doesn't work again, retires at 65 and is using all of that 45,000 a year. It also assumes there's no other assets. Now, we know that that won't be the case for everybody and if you're a couple that balance will sit at 650 or 640,000 odd. Now, this slide can be quite confronting for a lot of people for many reasons, because the balances might seem out of reach, but let me assure you there are levers you can work with. One of the fundamental levers will be the age you retire and the other one will be the income that you want to generate in retirement.
Now, Josh, I've mentioned a couple of times that age pension will do a lot of the heavy lifting for people in retirement and it does play a really important role in generating that retirement income.
Absolutely. Thanks, Ruth. So the age pension is for many people underpinning what their retirement income is going to be. As Ruth said, there may be other sources. There may be employment income, income from other investments, but at the core of it, we know for many, age pension will play a part and there's a couple of hurdles that you need to consider in regard to when you could actually receive the age pension.
The first Ruth has already mentioned briefly, and that is in regard to age pension age. Age pension age is currently increasing to the age of 67. It used to be 65 for men, it used to be 60 for women, but as we're seeing our life expectancies lengthen, as we are seeing people moving to retirement later, we're seeing that age pension age also push out.
The more important thing though to consider is not just reaching age pension age, but also thinking about what you will be eligible to receive from age pension at that time. And so when you reach age pension age there will be two means tests that will be conducted. It the first will be an income test and the second will be an assets test. And as Ruth said about 80% of Australians over age pension age are in recent of some form of age pension, but a significant number of those people aren't receiving the full age pension because of the income and assets test.
The worst result of either of these two tests, which I'll talk about in one moment, will actually be what determines your age pension. And I say in some regard that when it comes to your retirement income there is a holy trinity. There's thinking about how you can maximise the income that you receive, how you're assured that you're actually also receiving some age pension, but also thinking about the tax implications and considerations there, and this is a lot of what we're going to be talking about.
But the important thing to note is that regardless of how much age pension you get, even $1 can be vital, and the reason for that is that $1 of age pension also comes with other government benefits and entitlements, including the pension concession card. For those people who are in receipt of the age pension, the pension concession card can actually give them discounts or benefits in regard to a whole range of other things in their life, including access to pharmaceutical benefits, which are really important to managing their expenses and day-to-day living needs.
So it's really vital but we ensure wherever possible that you do receive some age pension. So let's think about those two means tests. The first is the income test and what the government will do here is they'll look at your income from all sources. This will be things like employment, any income you're drawing down from superannuation or other investments, including investment properties. Looking at your income from all sources and anything up to that threshold will basically mean that you're going to get the full age pension under the income test.
If, though, your income from all sources is greater than the cut-off, then you will receive no age pension. You'll fail this test and therefore you won't even go further with the second means test. If you have a result that is somewhere between the threshold and the cut-off, that means that you'll receive a part pension. But the important thing I'd just note here, and Ruth did mention this briefly, is that the government is aware that there will be people moving into retirement, moving into age pension age who could still be working.
So there are considerations the government makes there. Part of your employment income that you earn each fortnight will be ignored for age pension purposes. The government is also very focused on making sure you're using your investments in the right way. So you'll see that there is different ways they treat the income that you receive from different investment products, including a retirement income from super.
The second test they'll then do is what's called an assets test and here they won't just determine based on whether you're a single person or you're part of a couple, they'll also assess based on whether you have your own home or not. And, again, the theory is if you have assets, this includes everything except your principal residence. All your assets put together, if they add up to be less than the threshold, you will receive the full age pension. If they are more than the cut-off then you fail the test and you will receive no age pension.
So the important thing for you to be aware of here is that if your assets fall inbetween you'll receive a part pension, and that's really vital that when you're approaching age pension age, particularly if you think you may fall somewhere between that threshold and cut-off or, in fact, be closer to that cut-off, that you do seek out financial advice. That you do have discussions about how you're receiving income, where your assets are and what the implications could potentially be on receiving any age pension. Thanks, Ruth.
Thanks, Josh. Now, I think it's important that people take a step back and catch your breath. For a lot of people it can be a lot of information to digest in one go, unsure where the income is going to come from, whether they have enough super or whether they're on track to do what they actually want to do. There are a lots of tools out there to give you an insight as to whether you're on track.
Sunsuper has a fantastic retirement forecaster and, in essence, all you've got to do is go to the Sunsuper home page, type in "Retirement forecaster" and that will open up a very user friendly calculator. Looking for information like when you'd like to retire, how much income you think you'd like to live on in retirement and where your superannuation balance is currently sitting.
It will factor in that CentreLink income that you may be eligible for and it will give you a very good indication, as to whether or not you're on track for retirement. And if you're not, you will be able to move the dials. Those two big levers I mentioned that we have to work with will be what age you decide to retire and the income levels that you'll want to retire on and you'll be able to move the dials on that calculator to see where it lands for you.
Now, Justin, you've been a financial planner at Sunsuper for well over 10 years and I don't think anybody has spoken to more members about helping to knock down the level of retirement income to get to. How do you help members to come up with this?
Yeah. Great question, Ruth. Our advisers at Sunsuper, when we talk to our members about retirement, the first question we ask is, what do they want to do in retirement. You know, when the world opens up again, do they want to be doing overseas trips or are they more domestic travellers. Do they intend to do hobbies like golf, sailing or are they more into bushwalking. Do they plan to eat out a lot or are they more eating at home. Do they plan to have private health cover or not.
These are some of the things that we get our members to think about, what is actually going to get them out of bed every day and what is that going to cost them on a yearly basis and what we do at Sunsuper, as the Advice Team, is look at what they're trying to achieve and when they're trying to retire and work out, well, are they on track for that, and put in a place a bit of a road map to help them get there, plus also make some suggestions and recommendations on some of the things they can do to improve their situation.
So I think there were a couple of really important points that were raised there. Firstly, Ruth was talking about these levers, and I do think that's a really important way of thinking about your important and the choices you have. What levers can you push and pull? One of those is investments, which I'll come to in one moment, but I think the other thing to take note of is Justin talked about asking those questions about what is it that will make you get out of bed each day. What are the things that you're wanting to do and the lifestyle you have?
Again, that allows you to think about and for our team at Sunsuper to assist you in thinking about those levers that you may want to pull or push. Again, I'll remind you at this time if you do have any questions, please do post those in the chat bubble icon, remembering to please include your email address. If we don't get to those questions in this broadcast, we will respond in the days that follow.
So when it comes to your investments and - not just at Sunsuper but more broadly, we've seen a lot of people over the last six months or so being very focused on what's happening with share markets and a lot of their decisions are being driven by what they're seeing happen. And although that should be what's occurring to some extent, it's not the full story, certainly when it comes to your superannuation.
If I look at a typical member at Sunsuper. A typical member at Sunsuper who hasn't made an investment choice will possibly have about half of their money invested in Australian and international shares and we acknowledge that those have been volatile, but we also recognise that investments in shares gives great long-term investment potential, and this is something I will come to in one moment.
What we have done traditionally at Sunsuper, and in the superannuation industry broadly, is to try and offset some of that volatility, we have historically also invested in what we call traditional income generating assets, things like cash and fixed interest, but the thing we've got to be aware of here is that they are just not producing the investment returns that they once did.
Although these are set to stable, although they don't have the volatility that we see with shares, we're seeing them perhaps provide 1, maybe 1.5% in investment return. Think about your own savings account with the bank and how much that is actually providing to you. So although shares are important, and although these income generating assets of cash and fixed interest are important, we as a superannuation fund, being entrusted by a million members with over $70 billion in their savings for the future have to look at other investment opportunities, and this is why I'm saying when it comes to considering your investments in your super and into your retirement, your choices have to be more than just what's happening on the stock market.
At Sunsuper we also invest our members' money in private capital, companies that aren't listed on the share market. And although these companies do get revalued, and they're major companies around the world, as well as here in Australia, they are not going to suffer the minute by minute, hour by hour, day by day volatility that you see on share markets.
We also invest our members' money in real property that we own on their behalf, residential, commercial, industrial properties in Australia, as well as globally. The same applies for infrastructure. Investing in traditional infrastructure assets, including things like airports, rail lines, but also looking at new technologies, in our electricity production, in data housing. What we do at Sunsuper is invest our members' money across tens of thousands of different assets and that is really important when it comes to diversification around the choices you have, but also what is happening with your investment performance.
So, first let's see how that translates to choices. At Sunsuper we currently offer you 20 different investment options, but I'm showing here two of the ones that most of our members tend to be invested in. Our balanced option, which you can see has about 50% of its money invested in share markets and about 70% of all its money invested in what we call growth assets, things like shares, private capital, property.
Compare that to the retirement option, and instead of having 70% exposure to those growth assets, the retirement option has about 50% exposure. Instead of having half of its money in shares, as we've got with the balanced option, the retirement option has about a third of its money in shares.
The important difference here is that the retirement option still has exposure to growth assets, like shares, like property, but it also has a bigger cushion for when we see periods of volatility. And the important thing to note is that at Sunsuper, quite uniquely, for many providers in the superannuation industry, what we do is recognise that as you approach retirement your life is changing. Your investment needs and the considerations around your investments are also changing.
So where you choose not to make an investment choice, what we'll do is we'll actually look after your investments and make that choice for you. Up until the age of 55, we invest you in that balanced option I just outlined, about 70% exposure to growth assets including shares, property, private capital. But then from your 55th birthday, on the anniversary of your birthday each month for 10 years, so across 120 transactions, we gradually move your money from the balanced option to our retirement option.
And what we're doing over that 10-year period is still giving you exposure to those important growth assets, those growth markets, but we're also increasing your protection. So that by the time you reach age 65, instead of having that 70% exposure to growth assets, we've actually reduced it to less than 40%. Giving you great opportunity for future growth but also, as I said, giving you that protection as you enter retirement, and here's a really good way of looking at it.
What I'll look at here is what superannuation has done in comparison to share markets over the last 12 months, and then I'll look a little bit more broadly. But if we look at the last 12 months, it has been a year of two halves. From the 1st of July 2019 through to really later in the year towards Christmas, what we saw was that we were still experiencing this great growth that we've had in the decade that has followed the global financial crisis. But we all well remember that in Australia we then faced into the bushfires. We then faced into the floods that followed and that immediately led us into COVID.
So in the grey line we can see the ASX 300, and what it's showing is if you invested $10,000 on the 1st of July 2019, what would that $10,000 invested in the largest 300 companies on the Australian share market be worth at the 30th of June. And as you can see there, they're worth just over $9,300. But what if you were invested in our balanced option, which is shown there in orange, or in our retirement option, shown there in blue, and what you can see is that it doesn't have the same volatility. But what you can also see is that in those periods of growth, towards the tail end of 2019 as well as the recovery that we've seen glimmers of following the early stages of COVID, that the retirement and the balanced options have also benefitted from that growth.
But with superannuation we should never think about it in the short term, even if you're in retirement. Retirement might be something that you still have decades ahead of you to experience and enjoy. So it's important that we actually look at what is happening with our super over a long term. So, again, let me take $10,000, but instead of saying it was invested in 2019, let's say it was invested about 13 years ago, just prior to the global financial crisis.
In spite of the global financial crisis, in spite of the COVID downturn, what we see is that $10,000 is now worth almost $16,500. Yes, there's been periods of volatility. Yes, there's been periods of uncertainty and concern, but if you stayed the long haul you would have benefitted from those periods, and the same applies when it comes to, again, our retirement and our balanced options.
In both cases you see that the volatility has been smooth, but in both cases because of the diversification of the way we invest you can see there has also been great opportunity in that recovery we saw after the GFC. Was that important now? Well, it's important now because we know that just as certain as there will always be downturns in markets, there will following every downturn also be a recovery, and those recoveries give opportunity.
But the important thing for you to know is that you do have choice. You absolutely have choice around how your money is invested, both leading into and well into your retirement. But it's also important to be aware of the decisions that you make, the choices you make and the implications.
What I'm showing in this chart here is a member who we're saying has retired and they had $300,000 with us just prior to the global financial crisis. Now, I'm showing here again the balanced option and the retirement option. What you would see is that that person would have suffered a downturn as a result of the GFC, but following that they would of had this wonderful period of growth and recovery.
The important thing to note here is what we're showing in this chart is someone's balance at the same time they are withdrawing an income, and in this case they're actually withdrawing about 4% per year. So in spite of that, that $300,000 original investment, in spite of drawing down that income, in spite of the GFC and the recent COVID downturn, their balance is today not far off where it was 13 years ago. In some cases you can see it's actually better.
But what if during the GFC I understandably, because of what was happening, because of the uncertainty, made a choice. And in this case I'm saying the very dramatic choice of moving my money from our balanced or retirement options to the cash option. What you'd see is that that choice did actually cease the volatility, but as a result of this person drawing down an income their balance has continued to go down and that's because, as I've talked about earlier, cash investments just do not give the same performance they once did and they certainly don't perform well enough when you're drawing down four, five, more as a percentage of your balance each year in retirement income.
So I might at this point, Ruth, just pass back to you to think a bit more about the considerations here and invite Justin for his thoughts as well.
Thank you, Josh, and Josh is correct. Making a panicked and knee jerk reaction to market movements, as we just saw, can be very, very costly in the long-term. Now, at Sunsuper we do believe that it's important your investment strategy is appropriate and we acknowledge that it should be appropriate for the stage of life that you're at, for your own innate appetite for risk and also for your financial goals. And if you look back at those three concepts and you come to the conclusion that none of those three things have changed, our enduring advice for our members is your Sunsuper investments probably don't need to change either.
Now, having said that, we do respect the fact that this is your money and we want you to be able to sleep at night. We do not want you worrying about your superannuation and how it's invested, and for that reason Sunsuper has a large menu of investment options available for our members, and it doesn't matter if you're a conservative investment who doesn't like volatility, or whether you're a more aggressive investor who quite enjoys watching the volatility and sees opportunity there, or whether you're a socially conscious investor. Sunsuper has an investment menu that should suit all types of investors.
Justin, I know this is a very difficult conversation to have for many members and investments can actually cause people a lot of anxiety, particularly as you're moving into retirement. So how do you talk to people about investing and what kinds of things do you ask them to consider when they're thinking about this for their retirement plans?
Yeah. Thanks, Ruth. Look, Sunsuper has about 19 different choices, so we have a lot of choice for our members, but when they get advice from us we're going to ask them three main things, one, what's their timeframe for that superannuation to be invested for. Will they have their money invested past their retirement date, and potentially decades in retirement through one of our income streams, where they money still needs to work for them, or is it that their money will be pulled out of super in the short-term to pay off debt or something like that.
The second thing, of course, is that we've got to be mindful of is the level of risk that we're comfortable taking. Everyone enjoys positive returns, as Josh has mentioned, but how do we react when our balances go down in the short-term. Do we panic and make a rash decision or do we see it as an opportunity to potentially add money in? The more risk we take, of course, the more exposure to growth assets it will have.
And, of course, the third thing that we need to be mindful of, as Josh mentioned, is the returns that we need, or the returns that we're seeking, to get more return we need more exposure to assets other than cash. So growth assets, like our shares, our property, our infrastructure, can provide those returns, but over the medium to long-term. Cash, for most people, isn't good enough because it provides very little return. It's a great short-term investment, but not such a great long-term investment.
Thanks, Justin. Now, the whole theme of today's Webinar so far has been based around choice, choosing when you'll retire, choosing the income that you will live on in retirement, choosing how you will invest that superannuation, and all of that is for one goal and that is so that we can turn that superannuation into dollars in our wallets.
So now let's talk about how we're going to choose to do that. How will we structure that superannuation, once we do get to retirement, so that we can actually eventually go out and enjoy it? Now, there's lots of ways that you might access your superannuation when you get to retirement. Some people might choose to withdraw some, or indeed all of their superannuation as a lump sum. You absolutely have the option to do that.
Many people will choose to leave it in superannuation. In other words, you might have assets that are already generating income for you and you don't need to access that superannuation yet, and that's perfectly fine. There is no rule suggesting that you must start to spend your super when you retire. You absolutely can leave it there to accumulate further returns until you need to spend it.
The most popular strategy, I think, is to commence, what we call in superannuation an income stream. In other words, converting that superannuation moneys into a stream of income paid into your bank account on a regular basis. That tends to be it had most popular choice that we see for people. It helps with cash flow and managing the household budget. But, of course, you might decide to do a mixture of these. You might decide to generate an income stream, but you may still very well like the idea of accessing lump sums, for example, for one-off purchases like a caravan or a holiday or whatever it is you need that lump sum of money for. This decision will be totally up to you.
Now, I mentioned at the beginning of the Webinar that one of the first cross roads you will meet on your path into retirement will be preservation age, in other words, the age at which you can technically consider accessing some of your superannuation. It is on track to be 60, but as you can see here if you're currently 58, you have already reached preservation age. There will be opportunities for you to consider accessing your superannuation and this might be done for a variety of different reasons.
One of the most common strategies that Justin and any of the financial planners at Sunsuper will talk to members about when they reach their preservation age will be a product or a strategy called transition to retirement, and I'm sure it's a concept that you've all heard of before and it can cause a little bit of confusion, but I just want to give you a bit of an insight into how this will actually work.
Remember transition to retirement is a product you used while you've reached preservation age but you're still working. I mentioned at the beginning you will have the ability to access some of your super whilst you're still working at preservation age. The way we do that is to move the bulk of that superannuation money into what we call an income account.
Now, that account is going to look and feel exactly the way your superannuation account looks, except there's different rules attached. So effectively now you have two accounts, your existing accumulation account, with a very small balance left because you've moved most of it into a second account called the income stream.
Once you've moved that money into the income stream, as Justin mentioned, it continues to be invested. It's still a consideration. We still want that money to work. However, the difference here is you can start to access that superannuation and under a transition to retirement product you can access up to 10% of the balance that you've moved into the income stream.
Now, you might do this for a variety of reasons. Remember at the beginning I mentioned 60 was an important age. Once you get to 60, any money you draw out of super, be that a transition to retirement or however way you're going to access it, that income you take out of super will be tax-free. That might present to you an opportunity to maybe maximise some salary sacrifice arrangements, for example, to maximise your superannuation.
Justin also mentioned, some people will use products like this maybe to reduce debt and to get a bit of a speed up on paying down the mortgage. Whatever your strategy for implementing a transition to retirement product is, we highly recommend that once you've reached preservation age you have that conversation with us.
Now, a transition to retirement product will have rules attached to it. The most prominent rule to consider is the fact that there is a maximum you can take out, and I mentioned that is 10%. Now, there is also a minimum and the minimum payment currently has changed from 4% to 2% for those between the age of 55 and 64.
Now, Josh, that is the key feature, isn't it, to a transition to retirement product, that you are limited to 10%, but something changes there once you actually stop working and the transition to retirement product essentially ends?
Thanks, Ruth. There's actually two key opportunities that present themselves. At the point that you're over age preservation age but you're no longer working, or where you've met one of those other conditions of release that you spoke about at the beginning of this broadcast, those two opportunities is that that maximum income limit of 10% now disappears. You just have a minimum amount that you're required to draw down each year and that's going to be based on your age.
And the reason why the government does this is ultimately you're having your super to provide you an income in retirement and this is that second opportunity. The government allows you over the age of 60 to receive that income tax-free, but now in retirement also have your investment earnings tax-free. So in order to give you those concessions, in order to give you that opportunity, the government requires that you do take down part of your income.
The thing to be aware of is that at Sunsuper, regardless of what you choose to do with your super in retirement, we are focused on helping you, as you move into and live throughout, your retirement. And in recent times we've helped do this by reducing the administration fees that apply to our retirement income product. We've also introduced the retirement income bonus, which recognises that you're moving from accumulation stage to retirement stage and there are tax opportunities that come through our investments that we provide back to our members.
But we've also introduced dream rewards, assisting you to save money today and in retirement on every day discounts and rewards, so you're not spending as much of your income as you may otherwise need to. But the important thing I would say is that in these broadcasts we've discussed some key concepts, but there is a lot more to consider.
You need to consider those other levers that you have available to you. What contribution options do you have? Are you able to put additional moneys into super? Do you own your own home and are you considering downsizing that home as part of your retirement plan? And what opportunities does that give you, when it comes to your retirement savings?
Thirdly and importantly, what do you want to happen to any retirement savings that you may leave behind? Do you intend it to go to a spouse or children or other dependents? It's important for you to consider because there can be tax implications that you need to be aware of.
The fourth thing though, and most importantly, is we encourage you to choose advice. At Sunsuper one of the most important member benefits we provide is the ability for you to access financial advice in regard to your super at no additional cost. But the important thing here is this is only a benefit if you choose to use it. So, again, I encourage you that "i" icon on your screen, click on that, enter your details and one of our Advice Team will contact you to discuss what we've actually outlined in this broadcast today.
Thank you, Josh. I applaud you all for your questions coming through. We've had some great questions come through. Justin, you're very popular. Lots of questions coming through that need to be directed to you. One question, I think, would be quite beneficial for the audience would be around highlighting what you think are the key things to consider, if somebody is thinking about retirement in the next year or two.
Absolutely. Look, there's obviously a number of things we need to consider. What lifestyle we want to have in retirement, that's the number one. Two, when are we thinking about retiring? You need to take advantage of some of the opportunities that Josh has mentioned, with potentially contributing to super. There's some wonderful incentives that the government gives us to boost our super in the lead-up to retirement. Perhaps a transition to retirement strategy is appropriate for people. That could also be potentially thousands of dollars in tax savings.
But obviously knowing what you're going to have in retirement is important. Knowing what sort of income you're going to have, how you're going to fund that from your super, from your CentreLink and from your investments is absolutely critical and knowing if you can afford it is important.
Thanks, Justin. And I think when we're talking about advice there has been a couple of questions asking about the process. So can you clarify for our members listening to today, if you do actually select that icon to request advice, what happens from there and what would that journey look like?
Yep. Great question. So an appointment with a Sunsuper adviser is an adviser reaching out to you and having an appointment over the phone where they're trying to understand your situation and what you're looking to achieve going forward. They'll then be able to provide some recommendations or a road map in a state of advice about what's some next steps that you should then implement going forward. Now, that could be leading up to retirement. That could be, of course, the transition to retirement or, of course, strategies for you to look at with your super in retirement as well.
Thank you. And you mentioned transition to retirement there, it often does generate quite a lot of questions. Josh, I might flick to you for this one. There is a question here asking about the ability to take a lump sum out of a transition to retirement or how can you choose to withdraw that 10%?
Thanks, Ruth. Firstly, a transition to retirement income doesn't allow you to take a lump sum. That is one of the rules. Certainly, as the name suggests, you're still transitioning to retirement. The government doesn't want you to spend all your balance through lump sums before you get to retirement, and that's why that 10% limit actually applies, and the important thing to note there is that you do have flexibility in income. You do have the flexibility to have that as low as 2% currently or as high as 10%.
So in spite of the fact you can't take a lump sum, it still gives you quite good access to your superannuation, but I would highlight that the more you take out today as you're transitioning to retirement, the less potentially you will have at the point of retirement. So, again, it is a choice, but it's a choice that comes with implication and consideration and, again, I probably suggest that you know, like Justin has mentioned, what your longer terms or objectives are going to be before you do something like pull additional moneys out.
Thanks, Josh. And I think I'll wrap up on this question in the interests of time. Justin, I'm going to come back to you on this one, because it's a topic you probably spend a lot of time talking to members about. We have some questions here about qualifying for age pension and the level of superannuation you might be able to have before you start to lose some entitlements from age pension. Can you just touch back on that for people to revisit that again quickly.
Yeah. Great question. So when we're age pension age, CentreLink will count our superannuation, whether we're in the accumulation phase or whether we're in the income stream phase, okay, they're both treated the same as an asset, but also as an income. And as Josh mentioned in the previous slides, depending on whether we're a single person or part of a couple, okay, we incorporate our assets, apart from our home, we incorporate our income, okay, along with that and the worst result is what we receive. Okay. So age pension support obviously can do some of the heavy lifting for us, but when we retire, of course, drawing on our super and our investments is also key as well.
Thank you, Justin. Now, we acknowledge there has been lots of fabulous questions and in the interest of time we will have to call it an evening here, but we do endeavour to get back to each and every one of you who have put questions through where we do have contact details. Back to you, Josh.
Thanks, Ruth, and I'd like to at this point thank both Ruth and Justin for their time and involvement, they've been wonderful in assisting in this broadcast and it's been wonderful, although we're all distanced, Justin and Ruth in Brisbane, and myself in Sydney, we often spend a lot of time on the road and it's been wonderful to be together in this event.
For those of you who are staying on for our annual member meeting, we hope that you do enjoy it. But for all of you, we encourage you again to reach out to us. To explore the questions, to explore the opportunities, to explore the choices that you have as we try and make sure that you are retirement ready.
We wish you every hope, every success in these uncertain times. Know that all of us here at Sunsuper are very focused and committed on actually helping you achieve your retirement dreams. Thank you. We look forward to seeing you again soon.
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