The aftermath of the Covid era signals a return to normalcy for superannuation rules, with another temporary Covid measure ending on July 1 this year. The cessation pertains to minimum income stream payments, which have now reverted to their 2019 levels.
Upon retirement, individuals often opt for an ongoing ‘account-based’ income stream, distributed over several years rather than a lump sum immediately upon retirement. In this context, we refer to these continuous payments as ‘income streams’ to avoid confusion with Centrelink pensions.
Selecting an income stream brings forth various advantages, particularly for retirees over 60. Opting for an ongoing income stream exempts earnings on the remaining super funds from taxation, a measure designed to encourage sustained income streams and discourage early lump sum withdrawals.
To prevent abuse of this tax advantage, the Commonwealth mandates retirees using an income stream to withdraw a minimum amount annually. The minimum withdrawal varies with age, increasing as retirees grow older.
During the 2019-20 year, these minimum amounts were reduced by 50%, and this reduction persisted until June 30 this year. However, from July 1, 2023, the minimum amounts have reverted to their pre-reduction levels, outlined in the table below:
| Age | Annual payment as % of account balance 2019-20 to 2022-23 income years | Annual payment as % of account balance 2023-24 income year |
| 55—64 | 2% | 4% |
| 65—74 | 2.5% | 5% |
| 75—79 | 3% | 6% |
| 80—84 | 3.5% | 7% |
| 85—89 | 4.5% | 9% |
| 90—94 | 5.5% | 11% |
| 95+ | 7% | 14% |
Providers may not necessitate a set percentage, allowing retirees flexibility to adjust the annual withdrawal based on circumstances, especially for those managing their own super fund.
Our experience indicates a tendency for retirees to be cautious in the early stages of retirement, often opting for the bare minimum, such as 5% for a 65-year-old retiree. However, withdrawing a minimal percentage ensures the existing super lasts for more than 20 years. While this seems prudent, it’s crucial to consider that super remains invested, potentially earning returns even as withdrawals occur.
This presents an opportunity for retirees to enjoy their initial retirement years more by withdrawing an amount larger than the minimum. If investment earnings exceed the minimum withdrawal rate, the super balance can actually increase each year.
However, retirees may choose to withdraw an amount that utilizes both the investment earnings and draws down some capital each year. While this may result in a declining super balance, it aligns with the purpose of funding retirement without the need for super to last as long.
Living expenses tend to decrease in later retirement years, making it feasible to enjoy more discretionary spending earlier in retirement, such as travel.
Feel free to consult with us regarding the optimal annual withdrawal in your retirement. You may find our recommendations suggest a slightly more indulgent approach than initially planned!
