As has been widely reported, the Federal Government has extended the application period for early release of Superannuation to December 31, 2020, from the original deadline of September 24. This measure allows for eligible individuals to access up to $10,000 of their retirement savings via the ATO.
Treasury’s most recent estimate says more than half a million Australians have “completely cleaned out” their superannuation savings during the COVID-19 crisis so far, and predicts workers will withdraw a total of $42 billion under the early-access scheme.
It had originally estimated $29.5 billion would be accessed, but had to revise its forecast up to $42 billion to reflect the Government’s decision to extend the scheme until December 31 (given the further impact of Victoria’s second coronavirus lockdown).
While people under financial stress may have no other option, My Expert® suggests accessing your Super early should only be done as a last resort.
“Just because you can access your Super doesn’t mean you should,” says Founder & CEO, Brett Wadelton. “But if you are looking at doing this, it’s important to know and consider what the long-term implications might be.”
Impact on your Retirement Savings
While money accessed through the scheme is tax-free and may be more valuable to you now than in retirement, removing Super could leave you worse off in the long-term. Depending on your age, withdrawing some of your Super now could mean you miss out on double that amount by retirement age.
Taking money out early means the amount you withdraw from your Super will no longer be invested, so you may miss an eventual recovery in the market and lose the long-term benefits of having that money working for you (ie. it won’t deliver compound interest).
According to an example published by consumer advocacy group CHOICE*, for a 30-year old, the impact of someone withdrawing $20,000 would be almost $50,000 by retirement age.
Impact on your Insurance
As well as impacting your savings, any insurance cover you have may end if there isn’t enough savings in your account to cover insurance premiums. “In effect, this means your cover may be cancelled if there isn’t enough money to pay for fees and premiums,” says Brett.
“You also won’t be able to claim for any events that occur after your cover is cancelled. Once it’s cancelled, to gain cover in the future you would need to apply to your Super fund, which may also require health evidence.”
Other help is available
Before you withdraw your Super, it’s important to consider the other support that’s out there. For individuals and households, there is range of Government financial assistance available. These are detailed on the Treasury website. Some banks are also offering deferred payments of credit cards and loans.
Whatever your current financial circumstances, we’re here to help. If you’re in financial stress, please understand you’re not alone and reach out to us by calling 1300 My Expert (1300 693 973).
More information on the early release of Super is available from the ATO website.
Disclaimer: The information provided in this blog is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information in this blog you should consider the appropriateness of the information having regard to your objectives, financial situation and needs and it is important for you to consider these matters and to seek appropriate legal, tax, and financial advice.
Pinnacle Advisory Pty Ltd. Trading as My Expert Wealth ABN no 36 638 505 950 is a corporate Authorised Rep of MG Wealth Advisors Pty Ltd AFSL n. 496089 ABN no. 20 617 338 137.