Accessing your income stream in retirement, including minimum withdrawal changes

 

9 April 2020
 

In response to the coronavirus, the government has introduced changes to the minimum amount you’re required to withdraw from your income stream when you retire. In this article, we’ll address what these changes are and provide things you might consider when investing your money.

 

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When you retire and meet a condition of release, one of the ways you can access your income is via a regular income stream.

This approach enables you to choose how much you withdraw and how often. The money that remains in your account is also invested so your savings can continue to grow and keep up with the rising cost of living.

In response to the coronavirus, the government has introduced changes to the minimum amount you are required to withdraw from your income stream per year.

In this article, we’ll address what these changes are and provide some things you might consider when investing your money

Accessing your retirement savings as regular income stream

A regular income stream, like an account-based pension, means you’re essentially withdrawing your income on a periodic basis. This could be fortnightly, monthly, or even yearly.  And, you aren’t required to pay tax on the money that you withdraw from most funds if you’re over
the age of 60.

Changes to minimum withdrawal amount

There is a minimum amount required to be withdrawn each year if you’re accessing your retirement savings as an income stream. It’s based on a set percentage of your pension balance and your age.

Taking effect from 1 July 2019 and running until 30 June 20211, the minimum pension amount has been halved for people of all ages. For example, if you’re under 65, you’re only required to receive total income payments of 2%2 rather than 4% of your account balance in a year. For people aged 65-74, it’s now 2.5% as opposed to 5%.

If the pension payments you’ve already received this year are at least equal to this new reduced minimum, you can ask your pension provider to reduce or stop any further pension payments for the remainder of this financial year.

Consider your pension payments for next financial year

As a result of recent market movements, your account balance may have reduced. It’s important to consider what this means for you, in terms of varying your scheduled income payments, depending on what your income needs are.

Things to consider when investing your money

Being clear about your investment goals is extremely important in retirement. Once you understand your goals, you can build your portfolio in a way that’s more likely to achieve these goals.

For instance, if you’re looking to grow your retirement savings to ensure they keep up with the rising cost of living, you may opt for investments that offer good growth potential over long periods of time – such as shares or property. However, assets with higher growth potential also come with greater volatility, known as investment risk.

Alternatively, you may be looking to generate a stable income for your retirement so choosing a more conservative approach may be appropriate.

Consider diversification

Diversification essentially follows the concept of not putting all your eggs in one basket by spreading your money across many asset classes, countries, industries and even investment managers.

When one area of your portfolio is weak and falling, another may be rising strongly. So, if you have money invested across many areas, changes in their values tend to balance each other out.

Diversification not only helps to insulate your portfolio from significant share market movements, it has the effect of reducing the fluctuations in your portfolio. On the flip side, it does require greater effort to manage a diversified portfolio if you choose to do this yourself.

Seek support via a professional

Super funds have lots of information available online to help you understand your legislative changes that may impact your retirement.

Working with a financial adviser can help you design a plan to achieve your financial goals. They may also provide you with a better understanding about the risks and rewards of investing and how you can manage risk.

1https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Minimumannualpaymentsforsuperincomestrea

2https://www.ato.gov.au/Rates/Key-superannuation-rates-and-thresholds/?anchor=Minimumannualpaymentsforsuperincomestrea

Important information and disclaimer
This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. The information in this article is current as at 9 April 2020 and may be subject to change. The information in this article is general in nature and does not take into account your objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. An investment with NULIS is not a deposit with, or liability of, and is not guaranteed by NAB or other members of the NAB Group. Opinions constitute our judgement at the time of issue. In some cases information has been provided to us by third parties and while that information is believed to be accurate and reliable, its accuracy is not guaranteed in any way. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the NAB Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication. Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market.