Taking your super – options and alternatives

Darren Beesley
Head of Retirement and Senior Portfolio Manager
(AMP Capital)


One of the most common images associated with retirement is finishing work and walking away with a lump sum of super money to splurge on a new car, boat, caravan, holiday, or perhaps if you’re lucky, all of the above.

But it’s an outdated stereotype. Research shows that in the 10 years from 2004 to 2014, the payment of super as an income stream increased far more quickly than lump sum payments did, and by 2014 only around 16 per cent of retiring Australians took their super in the form of a lump sum.1

But are Australians right in their preference for income streams rather than lump sums? And is there another alternative?

When lump sums pay off

There are some benefits to taking lump sums.

Depending on the retiree’s circumstances taking a partial lump sum may be the best option if you have outstanding debts or health issues that require expensive treatment.

The Australians that do take lump sums mostly use them sensibly: they use the funds to pay off mortgages and debts. In fact, around one quarter of lump sums are used to pay off mortgages or make home improvements, while another 20 per cent are used to clear debts or buy a car.2

Lump sums can also be advantageous in the implementation of specific financial advice strategies, such as to manage cash flow from retirement accounts subject to the $1.6 million transfer balance cap.

And they can be useful where retirees are trying to reduce the impact of tax to be paid on death.

Growing future cashflows

But there are also some downsides to lump sum super withdrawals.

The biggest downside to taking a lump sum in cash is that it can then be harder to grow retirement savings into a much larger stream of cashflows in the future.

Even modest retirement savings, when invested appropriately and drawn down as an income stream, can make a big difference to the potential to live life comfortably and enjoy retirement.

For example, a single homeowning retiree with $200,000 in retirement savings may be surprised how that money, if sensibly invested, could significantly change their retirement lifestyle.

If invested to achieve an average annual return 3 per cent above the rate of inflation, they would receive $13,000 (a figure which would increase with inflation) per year for 20 years.

With the government Age Pension for a single homeowner currently worth $23,000 per year, that sum plus the cash flow from their investment increases their annual spending power to $36,000 per year – a significant 55 per cent increase in their annual income. This is illustrated in the chart below.

A single homeowning retiree with $200,000 in super drawing down their entire balance over 20 years
Source: AMP Capital, 2018

A third way

Ultimately, managing money in retirement is all about conf