Retirement income streams

Allocated pensions and annuities

Allocated pensions and annuities provide flexible income in retirement, though there are limits on the amount you can withdraw each year. This type of income means your money is accessible, relative to other products such as fixed-term pensions. In some situations you may be able to withdraw all or part of your capital as a lump sum at any time. There may be tax implications in doing this. Income payments will continue until your money runs out. 

How long your income lasts depends on how much you withdraw each year and how much you earn on your investment. In the event of your death, you can nominate whether payments will continue to be paid as a pension or converted to a lump sum and paid to a nominated beneficiary.

Fixed-term pensions and annuities

Fixed-term pensions and annuities pay regular income for a set period of anything between a year and 25 years. At the end of the term the payments cease. Some are designed to return all of your original investment at the end of the term; others will return part or none of it, but provide you with a higher income per dollar invested. This type of income stream is inflexible if you want immediate access to your money. If you die before the term is completed, you can nominate for payments to continue or for a lump sum to be paid to a nominated beneficiary. If no person has been nominated, a lump sum will be paid to your estate.

Lifetime pensions and annuities

Lifetime pensions and annuities pay a guaranteed income for life. Payments can be increased each year by a fixed percentage or to move in line with the consumer price index. Although this provides the security of receiving payments for the investor’s lifetime, this plan is inflexible if you wish to access more of your money to pay for any unexpected expenses.

Which income stream is best for you?

If you want flexibility with your financial affairs, then an allocated income stream may be the best option.

If security is more important to you than flexibility, then a lifetime or life-expectancy income stream may be better.

If you prefer to seek higher returns on your investment and you are not looking for flexibility, you might choose a market–linked income stream.

If you want the best of all worlds – a high level of security and certainty of income for part of your money, and a greater flexibility with the balance – investing in more than one income stream may be best.

Deeming accounts

Most banks, building societies and credit unions offer a special deeming account, though there may be restrictions on who can have them.

Deeming accounts are at-call accounts where the interest rates are generally based on the social security deeming rates. The rates paid on these accounts will usually vary if the deeming rates change.

Different institutions may pay different interest rates, depending on the account balance. The interest is worked out in different ways. It may be calculated daily and paid monthly, or calculated daily and paid yearly. The more often interest is paid into your account, generally the better your return. Some institutions charge fees.

Features typically available for deeming accounts include:

You need to declare the interest received, rather than the amount deemed to be received, on your income tax return in the year it is paid.

Be better off

ANZ Financial Planners are dedicated to providing you with information so that you can make the decision that is right for you.

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