There are a range of insurance options offered by super funds and other institutions that can cover you for illness, injury, loss of income or death. If something was to happen and you could no longer pay the mortgage, the bank cannot take money from your superannuation account to recover the debt.
A contribution to a super fund can be clawed back and made available to creditors if the contribution was made in an attempt to defeat creditors.
Benefits of a bank account in retirement
If you transfer your super to a bank account, your balance only changes if you spend money or earn interest. Knowing your balance will remain steady can offer a sense of financial control.
If you're experiencing severe financial hardship, you may be allowed to access some of your super funds earlier than usual. Eligible applicants could be approved to withdraw up to $10,000 from their superannuation account.
If you're under age 60 and withdraw a lump sum: You don't pay tax if you withdraw up to the 'low rate cap', currently $235,000. If you withdraw an amount above the low rate cap, you pay 17% tax (including the Medicare levy) or your marginal tax rate, whichever is lower.
While you usually can't access it before you retire, super can be there for you if you need it early. You'll need to meet certain conditions. If you're experiencing severe financial hardship, you can apply to access some of your super. This can help pay for basic expenses to support you or your family.
Lump sum. You may withdraw a lump sum from super at retirement of any amount up to your total balance. A lump sum payment can be useful if you need to repay debts, or you have some large expenses such as making home renovations or purchasing a vehicle.
If your super provider allows it, you may be able to withdraw some or all of your super in a single payment. This payment is called a lump sum. You may be able to withdraw your super in several lump sums. However, if you ask your provider to make regular payments from your super it may be an income stream.
There are absolutely no restrictions to accessing your Super Benefit when aged between 60 and 64 after you are retired. There are two ways you can access your Super; either as a lump-sum payment or as a pension.
Early access undermines the long-term performance of all super. One of the biggest long-term risks with this policy is that it starts to treat superannuation accounts like regular bank accounts, even if they are only drawn upon when there's an economic crisis.
Should I have my super in Cash? The Cash option has a very low risk level when measured over the short term. However, if you intend to stay invested in this option for a longer timeframe, you should consider whether the current low returns will be enough for your situation.
Failure to abide by a direction to pay superannuation can result in a fine of up to $10,500 or 12 months imprisonment.
Using Super To Pay Off Debt
Once savings are withdrawn from super, it is up to you how the savings are used. You can use the withdrawal amount to pay off debt, start a business, buy a car for personal use or even buy a house to live in.
The super can be used to make payments to your home loan or to pay council rate arrears. Any super you withdraw for this purpose will be taxed and the tax amount will be deducted from the lump sum. The tax rate varies depending on your age and other factors.
Assume, for example, you will need 65 per cent of your pre-retirement income, so if you earn $50,000 now, you might need $32,500 in retirement.
The minimum amount that can be withdrawn is $1,000 and the maximum amount is $10,000. If your super balance is less than $1,000 you can withdraw up to your remaining balance after tax.
If you transfer more than $1.9 million, you'll generally be liable to pay 15% tax (or up to 30% tax if you've gone over before) from the day you go over the transfer balance cap. You'll have to take the excess money out of your pension account; your options for doing this depend on the type of account you have.
The ASFA Retirement Standard Explainer says a comfortable retirement lifestyle would need $640,000 in super for a couple, or $545,000 for a single person.
Tax on withdrawals of taxable component
Your marginal tax rate or 32%, whichever is lower – unless the sum of the untaxed elements of all super lump sum benefits received under the super plan exceeds the untaxed plan cap. Amounts above the cap will be taxed at the top marginal rate.
You can only make one withdrawal in any 12-month period. The super you withdraw is paid and taxed as a lump sum. The tax rate will depend on various factors such as your age. You will need to contact your super fund to request access and provide the appropriate evidence.
Once you've applied, it takes us four business days to process your application. If your application is approved, you should expect payment from your super fund within five business days. This may take longer if your fund needs to contact you to clarify information.
Once we receive your completed form is received, your money will be deposited into your bank account. You should receive this within 5 business days. For financial hardship or on compassionate grounds, you can apply to make an early access withdrawal. You can apply through your Member Online account.