What are retirement income streams and do you need one?
The majority of us envision retirement as a period of relaxation, comfort, and fun. However, to turn this vision into reality you need to have a strong financial foundation or cushion for yourself that can support you through retirement. To attain that level of financial comfort as you approach this time, it is extremely important to integrate sustainable financial strategies into your life – including a retirement income stream.
To start with, you need to determine your expenditure. You can estimate this based on the kind of lifestyle you would wish to lead. It might be a challenge, but try to think clearly about how your lifestyle would look without a weekly or monthly income.
Once you successfully manage to figure out your potential expenditure and the number of funds you would need, you need to identify the frequency of receiving income.
There are several methods through which you can calculate your expenditure. Every method and product has its pros and cons. Therefore, a person needs to invest time to understand it all to make the right choice.
What Is An Income Stream?
Retirement Income Stream (RIS) is the easiest and tax-saving approach to receiving regular income with the help of your savings. As per the choice of your retirement income stream, you get the flexibility of picking your choice of the time and the amount you would wish to receive.
What a retirement income stream offers
RIS comes with several attached benefits like; tax relief income, recurring income from your retirement income stream account, tax-free on investment earnings (including capital gain), and payment of incomes.
If you are an annuity holder or get a specific set of pension benefits; you would get a guaranteed payment for a fixed time.
Why does it matter?
When you enter in retirement period, the potential to hustle and bear stress get declines at a steeper rate. Therefore, it is important to live a stress-free life when you are in your retirement period. You would seek something which can provide you financial security with less or no liability. This RIS comes in place for you.
The more control you would have at your source of income, there would be a high probability to reduce tax responsibility.
What is an account-based income stream?
It is one of the common sources of regular income composed of capital and earning that is paid directly from money which is there in a personal superannuation fund. According to the age of a retired person, a minimum percentage of balance is withdrawn every financial year and maximum, the total balance of the account can be withdrawn.
How to receive tax-free income in retirement?
One of the best ways to earn without worrying about taxes when you are retired is with an account-based pension. This is created with funds drawn from superannuation. The balance of an account increases and decreases as the value of an asset fluctuates. You can start to access your superannuation funds as soon as you meet the criteria of release.
Choose how you invest your money
Some of the possible choices you have to invest your saved amount for better retirement life are:
- Immediately buy an annuity
- Invest by purchasing bonds for yield
- Buy a rental real estate
- Invest in a variable annuity
How are super income streams taxed?
Just like there are non-taxable incomes for retired people, there are several taxable incomes too. Therefore, it is important to know which income groups fall under tax liability for you. Annuity and account-based pensions are types of super income streams. The taxable incomes under this super income are:
- employer contributions sacrificed salary contributions
- personally claimed a tax deduction
NOTE: Tax contributions and government co-contribution parts are tax-free.
According to age: If you are above 60 there are no tax charges for the entire benefit from the taxed super fund (the majority of funds are).
However, if you are under the 55 to 59 age group, for taxable super income; the amount earned in your super fund is taxed at the rate of 15%. It is then deducted before applying any investment earnings to your account. Any capital gains on assets held for longer than a year, are taxed at the rate of 10%.
What you should know about how transitions to retirement income streams are taxed
In the transition to retirement streams, you do have the opportunity to access your super fund while working. However, it is important to note that to gain access to this fund you must be in a specific age range (between 55 to 60 years). Also, you cannot withdraw a lump sum amount. Instead, 10% of the balance can be taken out every financial year. Depending upon your age group, you pay tax at the rate of 15%.
- How income streams from defined benefit super funds are taxed
In case you have registered yourself for defined benefit super funds, a statement would be sent to you before you would get entitled to avail benefit (super money). That particular statement would tell you the amount of benefit which would be taxable and how much you would be liable for tax payment.
- Different tax rules for non-super income streams and annuities
Have you managed to buy an annuity without utilizing a super fund? Then you have the advantage of getting a fixed income for a specific period. There is a marginal tax rate for this, which would be calculated as: pension income, less a deductible amount. The deductible amount is nothing but the capital, your original money. This comes back to you in the form of pension payments.
How can you start an income stream?
If you are older than 55 years of age or are between 55 to 60 years of age and choose to continue working full time or part-time, this means you have entered into the retirement income stream phase.
How can we help?
We are here to assist you in securing your future retirement by catering to you with tailored advice. Accumulus is here to offer all of the latest guidance, tips and strategies to help you make the right choice. Our team of experienced advisors will make sure that you don’t have to plan for such an important time alone.
