A superannuation income stream is becoming a popular choice for retirees. It allows members to access their super money through regular payments rather than getting a lump sum. Further, it enables retirees to better manage their money upon retirement. It also provides an easy transition from receiving a regular salary from an employer. So what is a superannuation income stream and what does it involve? Read our guide to find out.
What Is It?
In short, a superannuation income stream is a series of periodic payments to a member. It is a method of receiving a regular income, similar to receiving a salary. Essentially, the superannuation fund makes regular payments to a member, of the money that person has accumulated in their super fund. This is instead of giving a lump sum.
In 2016, over 83% of retirement benefits were taken as an income stream according to Colonial First State. It is important to note, before you can set up a super stream, you must be of an age where you can access your super. For information on when accessing your superannuation, you can read our guide ‘When Can Superannuation be Accessed Early?‘.
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Find a lawyerTypes of Super Income Streams
Account-based Income Streams
An account-based income stream is the most popular choice for retirees. Essentially, it is a series of regular payments from your super money. As the name suggests, the money is taken from the account you set up with the super fund. The super fund then transfers your chosen amount out of the fund into your bank account. The existing balance remains invested in your super account.
Generally speaking, there are two kinds of account-based income streams:
- Transition to retirement income stream
- Retirement income stream
A transition stream applies if you are gradually moving into retirement. On the other hand, a retirement stream applies if you are a full retiree who no longer works. One is not better than the other. Rather, it depends on your personal circumstances and whether you decide to gradually reduce your working hours or stop completely.
Annuity or Non-account Based Income Streams
On the other hand, an annuity or non-account based income stream is a fixed income. Therefore, this differs from an account-based income as it does not involve your account balance. Rather, an annuity guarantees you an income for the rest of your life or a fixed time period.
You purchase an annuity from a super fund or life insurer. When doing this, you decide the payment amount you receive. You will also decide whether to be paid monthly, quarterly, half-yearly or yearly.
Benefits of an Income Stream
There are a number of benefits associated with using a superannuation income stream. These include:
- Tax Benefits: The money remaining in your account is tax-free. Hence, this means you pay no tax on income payments, lump sum withdrawals or investment earnings you may acquire.
- Frequency of Payments: You have the choice in how often you would like to receive your periodic payments. Therefore, you will have flexibility in deciding how much money you will need.
- Investment Benefits: As your money remains in a superannuation account, the balance is continually invested on your behalf. Therefore, your super can continue to grow and accumulate interest.
For more comprehensive information on superannuation, you can read our guide ‘How does Superannuation Work (Employee)?‘.
Final Thoughts
To conclude, a superannuation income stream is a handy tool to manage your super balance. It is becoming an increasingly popular choice for retirees as it provides a regular, salary-like income. It also encompasses tax and investment benefits. If you need assistance in the area of superannuation, we recommend consulting a Super Lawyer.
