Super at 55: what you actually need to know before you touch it

This article is for general information only and does not constitute financial advice. Superannuation rules are subject to change. Please consult a licensed financial adviser before making decisions about your super or retirement income.

Superannuation is probably the most significant financial asset most Australians have outside their family home. It is also one of the most misunderstood particularly at the point when people in their 50s start thinking seriously about accessing it.

Before you make any decisions, it helps to understand the basic rules. They are more nuanced and in some cases, more flexible than most people realise.

When can you actually access your super?

The age at which you can access your superannuation is called your preservation age. It depends on when you were born. For example:

• Born before 1 July 1960: preservation age is 55
• Born 1 July 1960 to 30 June 1961: preservation age is 56
• Born 1 July 1961 to 30 June 1962: preservation age is 57
• Born 1 July 1962 to 30 June 1963: preservation age is 58
• Born 1 July 1963 to 30 June 1964: preservation age is 59
• Born on or after 1 July 1964: preservation age is 60

Reaching your preservation age does not automatically mean you can withdraw your entire super balance as a lump sum. The rules about how you access it depend on whether you have also met a condition of release.

Conditions of release

A condition of release is a legal trigger that allows you to access your preserved super. The main conditions relevant to people in their 50s and 60s are:

• Reaching preservation age and retiring — if you have reached your preservation age and genuinely intend to never work again (or not work more than 10 hours per week), you can access your super in full
• Reaching age 60 and ceasing an employment arrangement — even if you plan to work again elsewhere, ceasing one job after age 60 allows you to access super accrued up to that point
• Reaching age 65 — at this point you can access your super regardless of your employment status
• Transition to retirement — once you reach preservation age, you may be able to access a limited income stream while still working (covered in detail in Article 2)

The ATO’s superannuation access rules are the authoritative source on conditions of release and are worth reading directly, as the rules interact with individual circumstances in ways that are hard to generalise.

Tax on super withdrawals

How your super withdrawal is taxed depends on your age and the components of your super balance.

From age 60, most super withdrawals whether as a lump sum or income stream are tax-free for the vast majority of members with a taxed fund (which covers almost all retail and industry funds). This is one of the most significant tax concessions in the Australian system and one that many people are pleasantly surprised by.

Before age 60, withdrawals may be taxed at a concessional rate depending on the components of your balance. Your fund’s member services team can provide a breakdown of your balance components.

The temptation to withdraw early — and why to be careful

When the balance is sitting there and the mortgage needs attention or the renovation is overdue, the temptation to access super early is real. But drawing down super before you need to or withdrawing a lump sum when an income stream would serve you better has compounding effects that are easy to underestimate.

Every dollar withdrawn from super loses its tax-advantaged status and its earnings potential inside the concessional environment. A withdrawal at 57 has potentially eight to ten years less compounding growth than the same dollar withdrawn at 67.

The question is not just whether you can access your super it is whether accessing it now is actually the best use of it, given your overall financial position and retirement timeline.

ASIC’s MoneySmart retirement planner lets you model different scenarios. It is a useful tool for getting a sense of the trade-offs before a conversation with a financial adviser.

What to do before making any decisions

• Contact your super fund directly — most have member services teams who can explain your specific balance components, tax treatment, and options at no cost
• Use the ATO’s super tools and calculators to model basic scenarios
• Consider a consultation with a licensed financial adviser before making any withdrawal decisions — see Article 4 in this pillar for guidance on finding one who specialises in this life stage
• Check whether your fund offers a financial advice service as part of your membership — many industry funds offer limited personal advice at no additional cost