Lifetime income streams
Setting up a lifetime income stream is one way to get regular payments in retirement.
What is a lifetime income stream?
A lifetime income stream is a financial product that pays you regular income for as long as you live.
You buy a lifetime income stream with a lump sum of money, such as your superannuation savings or your personal savings. The provider guarantees regular payments to you during your lifetime, which can give you peace of mind that you won’t outlive your savings.
This type of product might be known as a lifetime pension when you buy it from a superannuation fund and a lifetime annuity when you buy it from a life insurance company or friendly society.
Understanding how types of income work together can help you make better decisions about your retirement.
How a lifetime income stream works
Typical product features of a conventional lifetime income stream:
You get a fixed amount (which may be indexed for inflation) of regular income for the rest of your life. This payment continues no matter how long you live. This gives you certainty of both the amount of income you’ll receive, and the length of time you’ll receive it.
You can nominate a reversionary beneficiary. If you pass away before your reversionary beneficiary (usually your partner or a dependant), they will continue to receive a regular payment for the rest of their life. This is usually at a reduced level, for example, 60% of your income stream.
You can set a guaranteed period when you buy the income stream. If you die within the guarantee period, your beneficiary will receive your payments, either as a lump sum or an income stream.
Limited flexibility. After the cooling off period, you won’t be able to change payment terms.
Available product features of innovative lifetime income streams
In recent years, some super funds and life insurance companies have introduced lifetime income streams with innovative product features. These new features can include:
The ability to choose and change an investment option to link income payments to. This means that while the duration of payment is guaranteed, the amount of regular payments will rise or fall based on the market performance of your chosen investment option.
Greater flexibility in choosing payment terms. For example, having the option to receive higher payments during the start of the income stream, defer payments or withdraw a lump sum in limited circumstances.
The availability of product features may differ between innovative lifetime income streams.
Smart Tip: Buying a lifetime income stream with your superannuation savings might increase your Age Pension, as special rules apply under the Age Pension income and assets tests.
Product features will affect your starting income
Lifetime income streams can deliver steady income and peace of mind in retirement. They can have flexible options to suit you and your family. But they also have rules and limits you need to know about.
The choices you make – for example, whether to index the payments for inflation or whether to nominate a reversionary beneficiary – will determine the amount of regular income you’ll get. So, before you buy a lifetime income stream, compare different products and features, to choose something that’s right for you.
Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income-sources/lifetime-income-streams
Important note: This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person. Past performance is not a reliable guide to future returns.
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