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Savvy retirees seek long term incomes

Research from Colonial First State shows that retirees are planning for the long-term by using their super savings to fund an income stream.

We all know the importance of planning ahead for a secure retirement. And with Australians living longer than ever before, many of us may need an income for 20 years or more after leaving the workforce. Now research from Colonial First State and Rice Warner shows that savvy retirees have been using retirement products to provide an income stream for the future.

What does the research show?

The Colonial First State Income Stream Index shows that 83.3% of retirement benefits are taken as an income stream, rather than an immediate lump sum. That suggests Australians are taking a long-term approach to financial planning for retirement, putting to rest the widely-held view that half of all retirement benefits are taken as lump sums.

“Australians are generally looking to the long term to fund their lifestyle in retirement. This is a sign of a maturing system, where – through good education and advice – people are becoming more and more self-reliant,” says Linda Elkins, Executive General Manager Colonial First State.

And the research shows that this trend is likely to become even stronger in the future, with the percentage of assets taken as an income stream at retirement forecast to reach over 95% by 2025.

Australians are generally looking to the long term to fund their lifestyle in retirement. This is a sign of a maturing system, where – through good education and advice – people are becoming more and more self-reliant.

A growing trend

So why are retirees increasingly turning to pensions and annuities to access their retirement savings — and what are some things to consider about these income streams?

Many retirees choose account-based pensions because they offer both a regular income and the ability to access some growth opportunities by investing in the options of your choice, while paying no tax on your investment earnings.

However, while account-based pensions offer you the flexibility to choose how your money is invested and make lump sum withdrawals if necessary, the income is not guaranteed as the balance is affected by market performance.

An annuity, on the other hand, offers a guaranteed regular income for a fixed period of time or your lifetime, regardless of what’s happening in the market. Note that in exchange for the security offered by an annuity, you give up the chance to see your balance grow when the market performs well.

Combining a pension with an annuity can help give retirees flexibility as well as the security of ensuring that the payments they receive will last during their retirement.

Today’s retirees are also in an increasingly good position to create valuable income streams over time, simply because they have more to invest, having spent many years under the superannuation guarantee regime.

In fact, our research clearly shows that the higher a retiree’s super balance, the more likely they are to roll their savings into a pension. Among retirees with more than $300,000 in super, 91% of accounts are taken as pensions, compared to just 30% with balances of $50,000.

Which is the right option for you?

Superannuation laws are complex and everyone’s situation is different, so it’s important to choose the right options for your individual needs. That’s where a professional financial adviser can make all the difference.

Did you know?

Pension and annuity products can be accessed through Colonial First State FirstWrap and FirstChoice. To find out more, talk to your adviser or call 1300 360 645.

Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468 (Colonial First State) is the issuer of the FirstChoice range of super and pension products from the Colonial First State FirstChoice Superannuation Trust ABN 26 458 298 557. Colonial First State also issues interests in products made available under FirstChoice Investments and FirstChoice Wholesale Investments. This document may include general advice but does not take into account your individual objectives, financial situation or needs. You should read the relevant Product Disclosure Statement (PDS) and Financial Services Guide (FSG) carefully, assess whether the information is appropriate for you, and consider talking to a financial adviser before making an investment decision. The PDS and FSG can be obtained from or by calling us on 13 13 36.