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Should you access your super early?

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By Capital Partners Ambitious Retirees

With the impacts of COVID-19 being felt across Australian businesses, many Australians are facing an unexpected loss or drop in their income and other financial setbacks. That’s why the Australian Government has stepped in with a range of measures, to provide much-needed financial support during this difficult period.

One of these measures is new super access rules, which will allow some Australians to withdraw up to $10,000 of their super before 1 July 2020, and another $10,000 in the new financial year. The amount taken out of super will be tax-free.

Depending on your circumstances, this may sound like a simple financial solution. But accessing your super early also carries some risks. Because super is designed to pay for your retirement, any decisions you make now could impact on your retirement lifestyle down the track.

Who is eligible?

To be eligible for early super access, you must one of the following requirements:

  • you are unemployed
  • you are eligible to receive a JobSeeker payment, Youth Allowance, parenting payment, or other special benefit, or
  • on or after 1 January 2020, either:
    • you were made redundant
    • your working hours were reduced by at least 20%, or
    • if you are a sole trader, your turnover was reduced by at least 20%.

If you’re eligible and wish to withdraw super, you can apply to the Australian Taxation Office (ATO) directly through the MyGov website.

The impact on your savings

If you withdraw some of your super now, it not only reduces your balance by this amount but will have a bigger impact on your retirement savings over the long term. This is because super accumulates compound interest – that is, earning interest upon interest.

Compound interest is a powerful tool for building your super balance, but, on the flip side, it also amplifies the impact that of any withdrawal.

For example, a 40-year-old who withdraws $10,000 from super now will actually end up with around $17,500 less in their savings when they reach the retirement age of 67. For a 30-year-old, this difference would be over $21,500. You can use the MoneySmart calculator to calculate the potential impact on your super savings, based on your current age and intended retirement age.

In addition to your savings, you should also consider the impact on your insurance. If you have life insurance through your super fund, you must leave enough in your account to cover your insurance premiums – otherwise you will lose your cover completely.

What it might mean for your retirement

A lot of people are doing it tough at the moment and urgently need financial relief to pay for essential living expenses, such as food and rent or mortgage payments. But if you have a choice, it’s worth taking a long-term perspective – even if your retirement is years off.

In Australia, it is estimated that a couple will need $640,000 in savings to fund a comfortable retirement, while a single person will need $545,0001. Many people put off thinking about their retirement until they are approaching the end of their working life.

However, as with any long-term investment, the more you have in your super now, the better off you will be when the time comes to retire. Although dipping into your super may not seem significant, it could make the difference between retiring when you want to – and having to delay it for several years.

The value of expert advice

We are living in unprecedented times – and every one of us will be affected differently by COVID-19. Given these challenges, it can be very hard to know whether you are making the right financial decisions. That’s why it’s worth seeking the advice of an expert, who understands your retirement goals and super strategy.

Your financial adviser can help you review your financial situation and weigh up all available options, including other forms of government support. That way, you can get peace of mind that you’re making the best choices – now and for the future.

[1] ASFA Retirement Standard, March 2020.

The information provided on this site is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different and you should seek advice from a financial planner who can consider if these strategies and products are right for you.

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