Lump Sum Or Annuity?
Monday December 8, 2008
It is a good idea to plan now whether you will draw a lump sum from your superannuation fund upon retirement or if you will take an annuity. Basing this decision as part of your overall retirement plan can help you to decide how to best handle your other retirement investments. Retirement planning requires more than just choosing a superannuation fund and putting money into it, after all. You will need to think about where you will live, what sort of lifestyle you will lead, how you will get around, etc.
An annuity may be preferable if you intend to have all of the other assets you will need for retirement before the end of your career. If you already have paid off your home, your car, and any other major purchases you will make to help in your retirement, then an annuity can allow your superannuation fund balance to actually increase for a few years before it begins to reduce. There is no guarantee of this, obviously, as the performance of a superannuation fund is liable to change over time. You will likely be putting less into your superannuation fund than someone who intends to take a lump sum, though, as you will be spending the money in other areas and that money may be taxed more heavily. Discuss your options with a professional financial advisor to work out whether an annuity could be beneficial for you.
A lump sum can be used to pay off the remainder of debt owing on major assets. That can make it very handy if you decide to put as much of your money as possible into your superannuation fund. The downside can be in case of a heavy loss to your superannuation fund near the end of your career. If you have planned your retirement savings very fine, then taking out a lump sum could mean that your superannuation fund will not have had time to recover from its losses. Again, discuss the possibility with a professional financial advisor to work out if a lump sum is a good idea, considering your specific financial situation.
Please visit our pages dedicated to master trusts and how a superannuation fund works to read more about using a superannuation fund. Also, please click on our ESUPERFUND sponsor banner if you are interested in finding out what they can offer you to help start a self managed superannuation fund.
