Everyone’s plans are different once they retire. Whether they include caravanning across the country or simply hitting the golf course a bit more, you’ll still need to make sure you have the funds to cover it.
A retirement savings account is a fuss-free place to save money ahead of your transition to retirement. You can put money away while you’re still working and access it the day you finish work. Learn how to compare accounts to find the best deals for your savings right here.
In the years before superannuation, you would open a retirement savings account as a way to squirrel money away for your golden years. These accounts are essentially a hybrid of a savings account and a super fund and give you a low-cost place to save with access to your money the day you retire or reach preservation age. They also have very similar rules and regulations as super funds.
These accounts become harder to find upon the introduction of the superannuation guarantee in 1992. Though they were squeezed out of the market in favour of high-yielding super funds, a handful of credit unions and major banks still offer retirement savings accounts.
Superannuation is the standard method of saving for retirement nowadays. The industry is worth trillions of dollars and, according to a 2019 ABS survey, the average Australian aged over 75 has more than $350,000 in their fund. By comparison, retirement savings accounts are now only offered by eight financial institutions around the country and some are only available to existing customers, rather than new ones.
Investing in a superannuation fund can get you up to a 20% return on your money every year. By comparison, your return on a retirement savings account will be calculated on a much lower interest rate. You can use Savvy’s savings goal calculator to plot how long it will take to reach your savings target at different interest rates.
Employee and personal contributions are allowed across both superannuation and retirement savings accounts. A spouse is also able to deposit money into both types of accounts. Using Savvy’s calculator, you can work out how much to regularly deposit to achieve your savings goal.
Super funds and savings accounts have the same withdrawal rules. You’ll only be able to withdraw funds if you’re retired or have reached preservation age, which is between 55 and 60 depending on when you were born. In both cases, you’ll only be able to apply for early release on medical or compassionate grounds. These can include suffering financial hardship, poor health, a terminal medical condition or if you’re temporarily or permanently incapacitated.
The key difference between these two retirement options is the protection you get over your money. Your retirement savings accounts won’t be knocked around by the performance of the market, meaning the value of your savings won’t drop no matter the economic climate. The federal government’s Financial Claims Scheme adds another layer of protection by protecting balances up to $250,000 if your financial institution collapses.
These costs will vary depending on who you choose to invest with. Super funds come with fees for such functions as administration, management and advice and are capped at 3% of your balance. By comparison, retirement funds generally have fewer fees. Some smaller institutions have no fees for opening an account, but larger banks may still levy an annual admin fee of up to $35.
You’ll largely get the same tax benefits under both saving methods as they come under the same government superannuation guidelines. However, you’ll be able to earn interest on your full balance, not just your tax-free portion, with a retirement savings account.
A pensioner savings account is a common method of banking for those who’ve hit retirement age. These flexible accounts work similarly to standard savings accounts, except you can have unlimited withdrawals without it impacting your interest rate. Calculated daily, your interest is tiered based on your account balance. For example, if you have a balance under $50,000, a bank may offer you a rate of 0.05% but if your balance is more than $250,000 you could have a higher rate of 0.25%. You can calculate how much you can earn using Savvy’s savings calculator.
Generally, you have to be over 55 and earning a government pension from Centrelink or the Department of Veteran’s Affairs to qualify. If you don’t receive a government pension and are over 65 years of age, though, you could opt to open a standard savings account or a free everyday account tailored to self-funded retirees. You can compare all of your options in one place with Savvy today before opening your account to ensure you set yourself up for the best return.
Market shocks are unlikely to affect the health of your retirement fund, with your balance determined by interest earned not share prices. That means your bank balance will continue to rise and remain healthy, even if the stock market is on the slide.
The federal government backs your balance, giving you peace of mind in the rare event your bank collapses. This capital guarantee is capped at $250,000.
Unlike a super fund which can take up to 3% of your balance in fees every year, these accounts often come with fewer additional costs depending on where you choose to open an account.
Low risk, low return
By opting for a low-risk option, you’ll generate less of a return on your money by opening a retirement savings account compared to a superannuation fund.
Hard to find
Retirement funds are rare these days, with as few as eight institutions still offering them to customers. Some institutions will also only offer these accounts to existing customers, limiting your access even further.
You miss out on the added benefits and flexibility of being a super fund member, such as low-cost financial advice.