Which retirement income stream do you choose?
Research from Colonial First State shows retirees increasingly prefer pensions and annuities to lump sums. But which income stream is right for you?
Will you be liable for capital gains tax?
If you sell some or all of your investment, you may trigger a capital gains tax event. This includes moving to another fund. A capital gains event means you may pay tax on the difference between the investment’s original cost and its sale value. The tax is at your marginal rate which could be as high as 46.5%.
If you have owned the investment for more than 12 months, the tax liability may be discounted by half, but it’s still worth checking with your financial adviser to assess any potential tax liability.
Will selling 'crystallise' your loss?
Most managed funds fluctuate in value, often sharply. If your investment has gone down in value because of market volatility and you decide to switch or withdraw, the possibility of recouping your losses is lost forever.
So, it’s important that you weigh up the chances of an investment recovering, and speak to your financial adviser.
Even experienced investors find it almost impossible to successfully predict the movements of investment markets.
Will you miss future growth?
It’s important to consider that you may be withdrawing at a time when markets, and potentially your investment value, are down. This means you risk missing a rebound in markets and any future growth opportunities. Even experienced investors find it almost impossible to successfully predict the movements of investment markets.
If you hold multiple investments and require access to funds, it’s worth talking to your adviser to ensure you withdraw from the most appropriate investment to minimise the impact on your investment strategy.
The chart below shows the performance of a $10,000 investment in the ASX 200 over 10 years. You can see the difficulty an investor would have, no matter how experienced, successfully picking the tops and bottoms of the market over the long term.
Have you spoken to your financial adviser?
Before you withdraw, make sure you understand the effects a withdrawal may have on your investment strategy. If you have a financial adviser, they can be invaluable in this process as they can review your situation and help you:
Alternatively if you don’t have an adviser we can help, so please call us on 13 13 36. Although we are not licensed financial advisers, we may be able to help you understand some of the implications of withdrawing, or refer you to a qualified financial adviser.