Is it a bad idea to withdraw all of your super at once?
After pouring a lifetime of savings into your super, the temptation to withdraw as much as you can, as soon as you can be an enticing one. And many Australians are ceding to this temptation.
Figures from the Australian Prudential and Regulation Authority (APRA) show that in the 2014/15 financial year $31.4 billion of super was withdraw in lump sums, as opposed to $29.5 billion withdrawn as pension payments.
While it certainly would be nice to access a significant amount of cast in a lump sum to handle payments such as mortgages, investments and holidays, Australians (particularly those with larger balances) have been warned that doing so can potentially be a bad financial move.
As Equip Super notes, the traditional gold watch and lump sum superannuation payment-approach to retirement is becoming increasingly outdating, particularly nowadays when, “Chances are very good that you’ll live longer, be more active, and expect more from your lifestyle.”
In retirement prudent money management is essential, and if you’ve received all your super in one huge lump sum that can be quite difficult, particularly after years and years of working and becoming accustomed to meeting your expenses with a regular, reliable income.
Justin Sadler, Equip Super’s head of member relationships, elaborates on the value of regular pension payments in this video interview with Kim Watkins, “It’s better to keep your money inside super. And one of the examples of that is that if you’re over 60 and you’ve got your income coming out of super then its tax free so it sort of makes sense that members keep their funds within the super environment as opposed to taking a lump sum and then exiting the super environment.”
That being said, withdrawing your super in one massive fund could potentially be beneficial if you’re looking to pay off your mortgage. The Australian Institute of Superannuation Trustees’ chief Tom Garcia said there’s many things to consider before withdrawing funds at once, “There are still a lot of retirees with small balances, for whom taking a lump sum may be the optimal choice. Many retirees with small balances take a lump sum but use it pay off the mortgage or invest in a term deposit. In weighing up taking a lump sum versus an income stream you need to consider a range factors, including the size of your super balance, any investments or debts outside super and tax incentives.’’
Equip manages $7 billion of investments for members working across a wide range of Australian industry sectors. This superannuation fund has been providing strong investment performance and has been a reliable provider of retirement benefits for over 80 years.
Equip has also produced an informative blog post explaining the benefits of “An income for life approach to super”. To access that blog, click here.
Related links:
What is divestment, and how does it affect you?
5 step guide for building a financial safety net
Laid-back attitude could be bad for superannuation