Different retirement income streams
Posted by Northadvisory on May 17, 2022
When you start thinking about retirement, one of the first questions you should ask yourself is, ‘How much money will I need?’
Once you know that answer, you can start looking at different retirement income streams and determine which will best suit your needs.
Here at North Advisory, we can work with you to help assess the viability of each option and find the most appropriate for your personal circumstances. Whether it’s a single income stream or a combination of two or more, we’ll make sure it fits your lifestyle… so you can live your dream retirement.
How do you determine income needs?
There are many variables that will impact your income needs in retirement. And it will greatly depend on the type of lifestyle you want to live. But it is important to have a clear understanding of your financial requirements before the security of a regular salary is gone.
An easy place to start is with all your standard expenses… things like your utilities – power bills, phone and internet, council and water rates. The bills that will always be there. Plus, you want to include other regular costs like vehicle registration or insurance premiums.
Calculate everything that you can already identify, then you can move onto the wish list.
Next up you can start thinking about your ideal retirement expenditure. All the ‘nice to haves’ – eating out, holidays, looking after grandchildren, any new hobbies. These expenses combined with your essential spending will give you a solid indication of your income needs.
You also need to think about how often you would like to receive payments; do you prefer to have a lump sum and spend from that, or would regular payments – almost like a salary – be more suitable? Different income streams offer different benefits, so you need to choose the one that works best for you.
An account-based pension is the most common type of retirement income stream. It draws directly from your superannuation and is tax free.
In order to access the funds in your superannuation and start your pension, you need to meet a condition of release. Most often, this is reaching your preservation age and preparing for retirement.
While there is a minimum amount that you have to withdraw from your super each year, there is no maximum. This means you have flexibility to access as much as you need. Plus, not only does it provide a regular income payment, it also offers the additional flexibility of withdrawing a lump sum. For example, if you needed to make some repairs to your home, you could immediately access a larger single amount.
You should also note that because an account-based pension relies on invested assets within superannuation, the balance can go up and down with investment market fluctuations.
Annuities are another regularly chosen income stream. You purchase an annuity, and it provides you with a regular, guaranteed income payment.
To buy an annuity you can use money from your superannuation or any other savings, and you select a set period of time or even the rest of your life… it all depends on the provider you purchase the annuity from.
People select annuities because they are very stable. You know exactly how much you are going to receive over the term, and it gives sound peace of mind that you will always have that steady income. But unfortunately, you don’t have the ability to access any lump sums.
Unlike superannuation account-based pensions, the balance of your annuity is fixed. It is not connected to investments and therefore will not fluctuate.
Investments and other assets
In addition to account-based pensions and annuities, you might also have other investments or assets and it’s important to consider how they will support you in retirement.
During your working life, it’s possible that you haven’t had to access your regular dividend payments; you might have simply re-invested… but once you retire you will probably start to include them as part of your regular income.
The easiest option is to keep them in your bank account and use them as day to day funds, but it’s important to understand potential tax implications. We recommend discussing how to minimise your tax obligations with a professional. We can help determine the best way to effectively manage these funds.
There is also the Federal Government’s age pension. This is provided through Centrelink and is means tested. How much you receive from other retirement income streams and the total value of your assets impact your eligibility and the amount you might receive through this payment.
The more wealth you have, the lower your age pension payments… or you might not receive anything. It is common for retirees to receive an account-based pension from their superannuation and a part age-pension from the Government. Again, it’s worthwhile discussing your situation with a financial advisor to make sure you are maximising your income options.
We are here to help
Finding the right balance of retirement income can be difficult, but our team is here to help! We can work with you to determine how much income you will require and then find a tailored solution to meet your needs.