SHOULD YOU ACCESS YOUR SUPER EARLY DURING THE CFC?

Super is your money and if you desperately need the money you should access it. However,  you should access it only if you need to because over the long-run accessing it now could cost you a lot of money.

Key points

http://www.selectingsuper.com.au/media/library/SelectingSuper/icon_arrow_right.png?1ca63 The Government is allowing individuals effected by the Coronavirus to access up to $10,000 of their superannuation in 2019-20 and a further $10,000 in 2020-21.
http://www.selectingsuper.com.au/media/library/SelectingSuper/icon_arrow_right.png?1ca63 You won't need to pay tax on amounts released and the money you withdraw will not affect Centrelink and Veteran's Affairs payments, or the JobKeeper Payment.
http://www.selectingsuper.com.au/media/library/SelectingSuper/icon_arrow_right.png?1ca63 Eligible temporary visa holders can also apply for a single release of up to $10,000 before 1 July 2020.
http://www.selectingsuper.com.au/media/library/SelectingSuper/icon_arrow_right.png?1ca63 If you increase your contributions later to put the money back into your superannuation, be careful if it impacts your contribution caps.

Super is your money. The Corona Virus Crisis and the economic lockdown it triggered has cost tens of thousands of Australian workers their jobs and caused tens of thousands more to suffer pay cuts or reduced working hours.

This is causing financial hardship for some people. To help them through this period the Commonwealth Government has changed the superannuation laws regarding fund members being allowed early access to their super. They passed special laws to let fund members withdraw up to $10,000 this financial year followed by up to another $10,000 next financial year.

To be eligible to do this you must:

  • Be unemployed
  • Be eligible to receive the JobSeeker payment, youth allowance for jobseekers, parenting payment, special or farm household allowance.
  • Be a temporary visa holder.
  • On or after 1 January 2020 either:
    • You were made redundant.
    • Your working hours have reduced 20% or more.
    • If you are a sole trader your business was suspended or it suffered a reduction in turnover of more than 20%.

If you meet these requirements and are granted access to your superannuation, you won't pay any tax on it and the payments you receive will not effect any Centrelink or Veteran Affairs benefits you may also be receiving. However, if you later wish to put that money back into your superannuation account be careful to not go above your contribution cap limits.

How to apply

If you believe you are eligible you need to apply online through my.gov.au.

But should you do it?

If you desperately need money and you have no other options, yes.

But you should first consider all you other options such as:

  • The corona supplement crisis payment of $550 per fortnight. Read more
  • Crisis household support of two automatic payments of $750. Read more
  • JobKeeper payments of $1,500 per fortnight for six months that may be available to your employer..

Will accessing your super early impact your superannuation?

Yes. Superannuation is a long-term investment. If you access it early you will reduce your long-run retirement savings because there will be less money in your account earning compound concessionally taxed investment income. This doesn't mean you shouldn't access your superannuation now, but at least understand the implications.

If you are aged 20 and take out about $5,000, assuming you have that much in your account, you will effectively clean out your superannuation and have to start again from scratch. You will most likely lose the insurance cover you have through your super fund and probably end up with $30,000 less by the time you retire at age 65. This will be about 8% less than what it would have been otherwise.

Table: Cost to your superannuation savings at age 65 if you access your superannuation early
    Savings foregone if you access up to
Age Average balance $10,000 Percent forgone $20,000 Percent foregone
20 $3,000 $30,000 8% $44,000 12%
30 $24,000 $40,000 12% $79,000 24%
40 $52,000 $27,000 9% $53,000 18%
50 $88,000 $18,000 8% $36,000 15%
60 $188,000 $12,000 5% $24,000 9%

If you are aged 30 and take out about $10,000 you will probably end up with $40,000 less by the time you retire at age 65, which is about 12% less than what it would have been otherwise.

If you take out another $10,000 next financial year you will end up with about $79,000 less overall, which is about 24% less than it would have been otherwise.

If you are aged 40 and take out about $10,000 you will probably end up with $27,000 less by the time you retire at age 65, which is about 9% less than it would have been otherwise.

If you take out another $10,000 next financial year you will end up with about $53,000 less, which is about 18% less overall than it would have been otherwise.

If you are aged 50 and take out about $10,000 you will probably end up with $18,000 less by the time you retire at age 65, which is about 8% less than it would have been otherwise.

If you take out another $10,000 next financial year you will end up with about $36,000 less, which is about 15% less than it would have been otherwise.

These figures show us that accessing your superannuation early has the most impact on people aged around 30. It has less impact on younger people aged in their 20s because they have less money in their superannuation - you can't take out $10,000 unless you have that much in your account to begin with.

The older you are the lesser the impact because you have fewer years to wait until you retire, plus you are taking out a smaller share of your account balance anyway.

The following graph illustrates how this works if you are 30 years old and access up to $10,000 now and a further $10,000 next year.

Graph: Impact of accessing your superannuation early

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