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What is an annuity?

An annuity provides guaranteed income for a number of years, or for the rest of your life. It is also known as a lifetime or fixed-term pension.

You can buy an annuity from a super fund or life insurance company. You are able to choose whether you want the payments to last for a fixed number of years, your life expectancy, or the rest of your life.

In order to buy an annuity through your super fund, you must be in the ‘preservation age’ which is between 55 and 60. Additionally. You are required to meet a condition of release e.g. permanently retiring.

You are also able to buy an annuity in joint names using savings. Through this method, you can split income for tax purposes. If either you or your partner dies, then the survivor has ownership and access to the funds. On the other hand, buying an annuity using a super lump sum can only be in the name of the owner.

When you buy the annuity, you decide the payment amount you will receive. This can increase each year by a fixed percentage or indexed with inflation. Further, you can also choose if you are paid monthly, quarterly, half-yearly or yearly. There are some conditions the ATO has about minimum annual payments if your annuity is bought with super money e.g. must pay a certain percentage of the balance based on your age.

You decide what happens with your annuity if you pass away. You can either nominate a reversionary beneficiary or choose a guaranteed period option. A reversionary beneficiary will receive your income payments for the rest of their life, usually at a reduced level. The guaranteed period option will allow your beneficiary to receive their payments as a lump sum or an income stream.

An annuity will impact your eligibility for the Age Pension as it is accounted for in the income and assets tests which are conducted. You should discuss exactly how the annuity will impact Age Pension entitlement with a Financial Information Service (FIS) officer.

Posted on 12 November '20 by , under Super.

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Transition to retirement

The transition to retirement (TTR) strategy allows you to access some of your super while you continue to work.

You are able to use the TTR strategy if you are aged 55 to 60. You can use it to supplement your income if you reduce your work hours or boost your super and save on tax while you keep working full time.

  • Starting a TTR pension: To start your TTR pension, transfer some of your super to an account-based pension. You have to keep some money in your super account so that you can continue to receive your employer's compulsory contributions as well as any voluntary contributions you may be making.
  • Government benefits and TTR: The benefits you or your partner receive might be impacted if you choose to opt for this strategy. How and what exactly will change might become clearer upon discussing this with a Financial Information Service (FIS) officer.
  • Life insurance and TTR: In some cases, the life insurance cover you have with your super may stop or reduce if you start a TTR pension – check this before making any decisions or changes.

TTR can help ease your mind as you transition into retirement but it can be a bit complex. Before you choose whether you want to use TTR to reduce work hours or save on tax, or even if you want to use TTR altogether, you should figure out how this will impact all aspects of your finances.

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