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Managing longevity risk and your superannuation

Longevity risk is a common and important factor to consider when planning for your retirement funds. Longevity risk refers to the risk of outliving your savings and arises as people enter retirement, and in most cases, with a fixed amount of money to use during their retirement years. Managing your longevity risk is important because retirees often have no idea of how long they will need their retirement funds for. Here are a few strategies to help you manage your longevity risk:

Purchase an account-based pension:

An account-based pension is a regular income stream you can buy with the money from your super after you retire and reach your preservation age. When buying an account-based pension, you can choose how much of your super funds you’d like to transfer to the pension phase, the size and frequency of your payments (within a set limit) and how you want your money to be invested through your pension.

If you were thinking of purchasing an account-based pension to begin with, now may be the time as the Government is temporarily reducing superannuation minimum drawdown rates for account-based pensions by 50%. The annual payment as a percentage of account balance currently has reduced rates between 2% and 7% (from age brackets from 55 to 95+ respectively).

Set up a lifetime annuity:

Lifetime income annuities and insurance products designed to provide income throughout your retirement. Annuities are bought from insurance companies with a lump sum of cash and in return, you can get regular income payments until you pass away or for the amount of time you’ve agreed upon.

To make sure you purchase the right annuity for your desires and circumstances, it is often wise to consult a financial adviser before making your decision or go through a reliable insurance broker. In the case that you’d like to avoid paying commission fees from an insurance broker, you can also purchase lifetime annuities from investment companies rather than a traditional insurance company.

Age pension as a safety net:

While there are a number of retirement safety net options available to retirees, age pension is the most obvious and most reliable. An age pension is a means-tested Government-backed safety net for retirees who are unable to fully provide for themselves in retirement. While a stable income stream to take note of, age pensions usually only provide their recipients with the bare minimum and hence considering some of the strategies listed above will give you more leeway with your funds and lifestyle after retirement.

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What to consider when consolidating your super

August 27, 2020

The ATO reported that 45% of working Australians were not aware that they had multiple super accounts in 2016. Having multiple super accounts is particularly common for individuals who have had more than one job. If this is you, it is important to identify and manage your super accounts because having more than one can be costly as a result of account fees from multiple funds.To combat this, you may want to consolidate your super, which moves all your super into one account. Not only does this save on fees, but it also makes your super easier to manage and keep track of.

Before consolidating your super, it is important to do the following:

Research your funds’ policy
Compare your active super accounts so you can make the right choice about which one you should close. Things to assess include:

Check employer contributions
Changing funds may affect how much your employer contributes, as some employers contribute more to certain funds. Check your current accounts to see if changing funds will affect this. Once you have selected a super fund, regardless of whether you choose a new super fund or one of your existing ones, provide your employer with the details they need to pay super into your selected account.

Gather the relevant information
When consolidating your super, you will need to have the following details ready: