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Should I take money out of my super fund early?

April 6, 2020  |  #Government Policy #Money Management

Temporary early release of superannuation: who is eligible, should I use this option, how will it impact me later on?

Many Australians are facing difficult financial problems as a result of the social distancing policies associated with Coronavirus. Lost or reduced income often results in shortfalls each month and can lead to extreme financial hardship. One option on the table to support people through this is taking up to $10,000 from your Super fund this financial year, with an additional opportunity to do the same in the 20-21 financial year. This may seem like a silver bullet to immediate problems, but it comes with its own costs that you need to be aware of. For some, it may be the best option. For others, there may be better alternatives. Here we discuss the pros and cons of taking money from your Superfund early.

As part of the Government’s stimulus package for those affected by the Coronavirus, on 22n March it was announced that individuals facing extreme financial hardship could access their superannuation early, tax-free, through the temporary early release of superannuation program. If you are eligible for this and decide to go ahead with withdrawal, it’s important to know how the reduction of your super balance now will impact you well into the future.

Working with a financial planner will help you to gain clarity on whether this is the best option for you right now, and if so, what it may mean for you and your retirement goals.

We spoke to Invest Blue Financial Planner Theo Holland about the pros and cons of this option, and what you should consider if you do decide to make a withdrawal. Below we dig deeper into the details of the package and list the pros, cons and considerations.

 

If you would like to speak with a financial planner about how tapping into your superannuation might impact your financial situation, please get in touch.

Understand how a financial adviser can support you with your need for financial security. Get in touch.

 

What does it look like?

As of the 20th of April 2020, eligible individuals will be able to apply online through myGov to access up to $10,000 of their superannuation before 1 July 2020. They will also be able to access up to a further $10,000 from 1 July 2020 until 24 September 2020.

To be eligible to apply for early release you must satisfy any one or more of the following requirements:

  • you are unemployed; or
  • you are eligible to receive a JobSeeker payment, youth allowance for job seekers, parenting payment (which includes the single and partnered payments), special benefit or farm household allowance; or
  • on or after 1 January 2020:
    • you were made redundant; or
    • your working hours were reduced by 20 per cent or more; or
    • if you are a sole trader — your business was suspended or there was a reduction in your turnover of 20 per cent or more.

People accessing their superannuation will not need to pay tax on amounts released and the money they withdraw will not affect Centrelink or Veterans’ Affairs payments.

If you are eligible for this new round of early release, you can apply directly to the ATO through the myGov website: https://my.gov.au/.

Separate arrangements will apply if you are a member of an SMSF.

You will be able to apply for early release of your superannuation from 20th April 2020.  More information is available through this Treasury fact sheet.

If you would like to know what other support packages the government has made available, read:

and follow our dedicated COVID-19 page that will stay current as the information changes.

What are the pros and cons of tapping into Super now?

For some people at this time, tapping into your superannuation may be a necessity for keeping a roof over your head and food on the table. For others, although it may not be a necessity, it can be a tempting idea.

It’s important to understand how a reduction of your superannuation balance now may affect you in the long term. It will be different for every individual of course, and implications will depend on your age and other personal factors. If you would like to explore this option, the best thing to do is to consult a financial adviser to find out how it will affect you, and how to make it work for your current situation.

Pros

  • The amount you deduct from your superannuation through this scheme is not taxed.
  • You are free to spend this money at your discretion.
  • If you do not spend the money, you are able to recontribute the amount to your superannuation in the future (within the contribution caps).

Cons

Superannuation is designed to benefit from compounding interest and investment growth over a long period, so a reduction in your balance today can have a significant impact on your balance, and quality of life when you retire. As we have said, the impact will depend on your age and other factors, but to give you an idea, we’ve modelled what this may look like.

 

super calculations

If you’re 25 today, based on an average return of 6.3% p.a., by the time you retire at 65, $10,000 could have grown by $114,233. So, if you take $10,000 out now your super balance could be $124,233 less than its potential when you retire.

If you’re 35 today and in the same risk portfolio, taking $10,000 out of super could mean your balance is $66,173 less than its potential, and $18,774 less if you’re 55.

If you are eligible and decide to take the full $20,000 from your superannuation this year, these potential losses will rise significantly again.

 

At this time of uncertainty and fear, it’s important that you make well-informed decisions, understanding how a lifeline today might impact you in the future. To find out how this modelling applies to your specific situation and what tapping into your super now means for you, please get in touch. We’re here to help.  

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.