More Australians are withdrawing money from their superannuation accounts in lump sums rather than accepting it as a steady income stream, according to new research from the Australian Prudential and Regulation Authority.
Its research found account holders withdrew a hefty $31.4 billion in lump sums in the 2014/15 financial year, compared to the $29.5 billion collected from superannuation accounts as a pension. Lump sum withdrawals were also higher than super savings taken as a pension income in the 2013/14 financial year, but that year just $27.7 billion was withdrawn as a lump sum, compared to $26.1 billion as a pension.
Roughly a quarter of lump sums are used to repay mortgages or make home improvements. Another 20 percent of lump superannuation sums help repay a vehicle or other debt.
Withdrawing your entire superannuation sum at once can be a bad move for your finances, particularly if you have a large account balance.
Tom Garcia, the chief executive officer of the Australian Institute of Superannuation Trustees, admitted a lump sum payment can be the best choice for people with small balances who use it to pay off their home loan or invest in a term deposit. However, these people forgo the tax-free earnings retirees are entitled to in the pension phase. When you’re used to receiving a regular wage, collecting a pension can also be a good way to ensure you don’t overspend. It takes a lot of discipline not to splurge once a large sum hits your bank account.
The biggest reason that people withdraw their superannuation in a lump sum is because they feel like they have to. While it’s important to repay debts, using your superannuation to do so will put you in a precarious position in your retirement. At Chase Edwards, we know there’s a better way. Speak to our retirement experts today to learn how you can secure your financial freedom and ensure your superannuation and other assets work better for you in your golden years.