Why taking your super as a lump sum may be a mistake

Cara Brett 27 June 2015

It’s no secret that Australians feel very disconnected from their super. You only have to look at the number of people that have multiple super funds incurring multiple sets of fees to realise that most people don’t really see money in super as ‘real money’.

When these people reach retirement age however, this quickly changes and suddenly that distant thought of super becomes very real. The next question on most people’s lips seems to be ‘can I have it now?’


When you retire and get access to your superannuation, you are presented with a number of options as to how you wish to draw down your balance. I cannot emphasise enough that this is the time to get advice. Do not draw down your super before you have received advice otherwise you could find yourself in a world of pain.

Despite this, very few people actually get advice and a lot of people will simply take the amount as a lump sum. Depending on your situation, this can be a disaster.

Depending on your age, you may be able to withdraw your money out of your super tax free. The problem that arises is what do you do with the money next? A lot of people will simply put it in a bank account earning minimal interest, or at best, a high interest bank account. They think they are doing the right thing as they are making interest on the money. What they don’t realise is it was likely earning more in their super fund, and the kicker, those earnings may have been tax free! Now they need to pay tax on that amount, which could be quite a lot.

In a panic, they may decide that it needs to go back into their superannuation fund. However, depending on their age and their working status, they may not be able to make any further contributions. Another trap which I see is when they try to contribute more than the contribution cap, resulting in a VERY substantial tax bill. I see this happen all the time and it is really sad to watch people’s entire lifesavings instantly decrease substantially.

So don’t just pull all your money out of your super the moment you get it. Super is a powerful tool and one that should not be taken lightly. Get the right advice upfront and save yourself the hurt in the long run.

What about you? How do you plan to spend your retirement savings?

This post is from Ben Brett. Check out our details in the About Us page.

Posted in: Ben BrettFinancial Planning and Superannuation

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.