Why an income stream can make more sense than money in the bank

A retirement income stream can be an extremely effective way to find financial peace of mind in retirement.

This clever strategy means drawing down on your super in small intervals as a regular, reliable income, rather than taking it all as a lump sum. Your savings remain invested in your super fund.

Can this really be more effective than drawing on all of your super as a lump sum and moving your savings into a bank? And how does super investment returns compare to bank interest?

The following research reveals just how big a difference this choice can make.

Retiring with $50,000 in super

If you retired 5 years ago with $50,000 in super at the age of 65, you could have opted to draw this as a lump sum, place it in a bank account term deposit, and arrange to access it as a regular income. Or, you could have left it in your Industry SuperFund with an Income Stream product and also accessed a regular income.

Money in an Industry SuperFund Income Stream account
If you kept the $50,000 in the average Industry SuperFund Income Stream account and withdrew the minimum amount, you would have withdrawn $13,482 over five years and today your balance would be $60,537.

Money in the bank:
If you took the same $50,000 out of your Industry SuperFund and put it in a term deposit with a bank and accessed a similar regular income ($12,112 over 5 years), today your balance would be $44,571.

Retiring with $200,000 in super

The advantage of staying invested in super becomes even clearer for those who retire with more:

Money in an Industry SuperFund Income Stream account
If you retired 5 years ago with $200,000 in super at 65, and withdrew the minimum amount as a regular income, you would have withdrawn $54,127 over five years and today balance would be $244,013.

Money in the bank:
If you took the same $200,000 out of your Industry SuperFund and put it in a term deposit with a bank and accessed a similar regular income ($48,446 over 5 years) today your balance would be $178,284.

It’s important to note that the past five years has been a period of strong returns for super funds and that past returns are not guaranteed to continue into the future.

Also, with money in the bank, any interest you earn may have tax implications.

How much difference can my choice of fund make?

Your choice of fund can play a major part in this outcome. Australia’s 15 Industry SuperFunds offer peace of mind: they exist only to profit members, not shareholders. They have never paid commissions or incentives to financial advisers.

The smart choice today could help you live the lifestyle you want today – and may help you find more savings for the years ahead.

Click here to learn more about retirement income streams and how they can help during the important first years of retirement.

Disclaimer: Comparisons modelled by SuperRatings, commissioned by ISA. Modelled outcomes show results over the last five years for the average net benefit results of the main balanced investment options of 15 Industry SuperFunds’retirement income products and the average of the 4 large banks term deposit returns over each 12-month period to 30 June 2016.

Modelling for Industry SuperFunds takes into account historical earnings, fees and a drawdown amount of 5% p.a. during the first 5 years of retirement. Examples assume the average 5 year Industry SuperFund investment return of 9.49%.

Modelling for the big 4 banks uses the 12-month term deposit rates to calculate earnings and assumes that the term deposit is held outside of superannuation, with no administration or investment fees deducted over the 5-year period and no tax paid on earnings.

Capital growth will not continue throughout retirement. Past performance is not a reliable indicator of future performance. Outcomes vary between individual funds and banks.  Consider Product Disclosure Statements (PDS) and your personal financial situation, needs or objectives, which are not accounted for in this information, before making an investment decision.