Self-funded Income Streams

Written on the 1st of December 2009 by Continuum Financial Planners Pty Ltd

There are a number of ways in which a retiree can provide the income stream required to meet their lifestyle (and emergency) needs when not able to qualify for the age pension. We understand that most people – by the time they reach retirement – are looking for two key features about their retirement wealth:

1. consistency of adequate income; and
2. preservation of capital.

Falling behind these key requirements is a range of wishes that will be prioritised differently by individuals according to their circumstances, both personal and financial. Some of these wishes (‘like to haves’) are –

• growth in asset value/ wealth;
• ability to continue comfortable lifestyle;
• surplus funds to support ‘family’; and
• ability to meet occasional discretionary capital expenditures.

Each of the above are features of what is generally termed ‘financial independence’. How is such wealth held; and which structures are tax-effective in this phase of life?

There are two broad areas from which income streams can be generated: superannuation; and non-superannuation.

Superannuation funds can provide income streams in the following forms (subject to relevant ‘conditions of release’ having been met):

• withdrawal of irregular funds, based on ‘earnings’ of the fund;
• Allocated Pension;
• Transition to Retirement Allocated Pension;
• Term Allocated Pension; and
• (through other mediums) purchased Annuities.

Income streams from non-superannuation sources can be drawn without any consideration of conditions of release (such as occurs in a superannuation context), and can be in the following forms:-

• withdrawal of irregular funds, based on ‘earnings’ of the fund; or
• (through other mediums) purchased Annuities.

Note: the three Allocated Pension references within the Superannuation listing above all rely on an eventual drawdown from capital. In certain circumstances, a similar process could be structured in a non-Superannuation environment.

The income tax consequences of each of the above income streams should be considered before implementing a strategy to rely on them. The most effective time to do this (where practicable to do so) is prior to retirement, during the wealth accumulation phase.

Contact your Continuum Financial Planner for advice on an investment strategy to satisfy your retirement planning needs and circumstances: use our Contact Us facility for prompt attention and an initial meeting at our cost.