Over 1.8 million Australians have withdrawn a total of $13.5 billion from their super accounts to support them during these uncertain times. The early withdrawal scheme was available for those financially impacted by COVID-19 giving them the ability to access up to $10,000 in the 19-20 financial year and an additional $10,000 in the 20-21 year. While this scheme has been crucial for many households to ride out these difficult times, it’s also just as important to consider your options for boosting your super into the future once you have financially recovered.
The premise of superannuation fund works on the power of compounding. The higher your super balance, the higher the earnings and investment growth. An early withdrawal from your super can therefore result in a loss of potential earnings from compounding growth in the long term. The potential earnings lost depend on your current age and a number of other factors.
For instance, if you are 25 years old today and withdraw $10,000 from your super account, you will be down the $10,000 plus the potential earnings on the compounding growth which on average would be $114,233 by the time you retire. However, if you are closer to the retirement age, say at 60 years of age, the loss of earnings is estimated at $3,702 on top the $10,000 that you withdraw early as shown below.
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Accessing the early withdrawal may serve to meet your current financial needs and requirements but will impact the funds available and financial position post-retirement. It is recommended to review your super and strategise ways to boost your super after a dip or $10K withdrawal. Below we discuss some of these options:
It is important to use your super withdrawals wisely and ensure you are only accessing it if you need to spend it where you need to. Analysts reveal 40% of those accessing their super had no drop in income during the pandemic and a there was a whopping 64% increase on spending towards non-essentials compared to the 14% increase spent on debt repayments.
It is important to keep in mind your super is an asset and grows in compounding interest. It’s also important not to lose sight of long-term goals such as your retirement savings to ensure you can live your best possible life in retirement.
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The government’s initiative to allow people to withdraw early from their super fund to meet their short-term needs during the current crisis is a much-needed step. It can help you to stay on top of your bills and repayments during the ongoing financially difficult times. Additionally, the withdrawal is tax-free, and the unused amount can be added back later as a voluntary contribution.
If you are concerned about the balance of your super or want to discuss which strategy to boost your super is right for you, or to simply review your super, one of our advisers will be able to assist you.
Book your complimentary initial consultation with one of our advisers today.
What you need to know
This information is provided by Invest Blue Limited (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.
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