Retirement investment account types

By Louise Chan

March 03 2020
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Planning your retirement finances is important to become financially independent in retirement, and the superannuation scheme is one way to build your retirement savings.

When the retirement income starts coming in, you may need a retirement investment account to protect your retirement savings from longevity risk.

What is a retirement savings account?

A retirement savings account (RSA) is similar to a superannuation account but is managed by a bank, credit union or insurance provider instead of registrable superannuation entities (RSE).

Unlike super, which follows a trust structure, RSAs are more similar to regular savings accounts.

RSAs used to be the primary way Australians saved for retirement, but the government’s push for superannuation has decreased the number of institutions that offer RSAs.

Despite this, existing RSAs enjoy the same tax rate and advantages as superannuation accounts, so it’s still a viable option for self-employed people or those without a regular income.

However, there are still other types of accounts that you may consider.

Types of retirement investment accounts

Account-based pension
Once you reach preservation age and would like to start receiving payout from your super, you need to transfer some or all of your balance in super to an eligible account-based pension fund.

Then, with the amount you transfer, you must decide:

whether to receive a lump sum or income stream;
the payout frequency; and
how the remaining transferred balance will be invested.

The last point is particularly important because your remaining balance will still be invested through your fund, which means investment returns may grow your retirement savings.

There are several investment options you may choose from – depending on your fund manager’s offerings – but consider seeking financial advice before making investment decisions. You may still lose a chunk of your money if you invest your account balance in a high-risk asset class, considering your time frame.

The process is the same for self-managed super fund (SMSF) trustees.

Government pension
The government age pension can also be a source of income in retirement, but unlike the others, there’s no investment involved.

This is simply a government benefit given to eligible pensioners.

Annuity
An annuity is a type of account that guarantees your income for a fixed term or until your death.

Unlike managed funds and super, annuities are purchased from insurance providers and requires you to pay a set premium based on the amount of income you wish to receive in retirement.

Annuities are less flexible compared to super and other account-based pension – you must satisfy the agreed condition of release before seeing a single dollar of payout.

However, annuities are also favourable for the account holder because their retirement income will not be affected by sharemarket movements. That is, you are guaranteed the amount and term you indicated when you purchased the annuity as long as you were able to meet your payment obligations.

Term deposit
Term deposits (TDs) can guarantee fixed returns that account holders would receive upon maturity – when they may partially or fully withdraw their money, renew the TD or opt for different terms.

Conventional TDs earn a fixed interest rate and are locked in for a fixed term, but are now flexible and have branched out into different types.

For instance, some TDs may withhold interest payout for the duration of the term in exchange for reinvesting them along with the principal for a higher return upon maturity. This type of TD is called zero-coupon.

Deeming/retirement account
A deeming account is a type of investment account for retired Australians or government beneficiaries that is offered by accredited deposit-taking institutions.

The balance in a deeming account gain interest according to the government’s deeming rate – the rate of return used to compute Centrelink benefits.

Explore nestegg to know more about investing for retirement.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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Retirement