Early withdrawal of funds from Superannuation is one of the options being made available to Australians suffering financial hardship during the COVID-19 crisis. In this article Financial Adviser and Mortgage Broker, ROD LINGARD, delves into the pros and cons and what the real long-term cost are for those taking up the option.
I want to start this blog by extending my thoughts and best wishes to anyone who has been directly and adversely affected by the COVID 19 Crisis.
You are probably aware that you may be able to apply for early release of some of your superannuation. For those eligible there is the ability to access up to $10,000 prior to June 30 this year, and a further $10,000 after June 30 this year.
Before discussing this issue, it is important that I make a disclaimer. By law, only a Financial Planner can make the specific recommendation that you withdraw superannuation. In order to make that specific recommendation, they must take into account your relevant personal circumstances, and then put that recommendation in writing. There have been reports that individuals from certain professions have been ‘advising’ people to access their super.
The good news is that it is perfectly lawful to provide some general information about the process and some things to think about.
First of all – who is eligible?
To apply for early release, you must satisfy any one or more of the following requirements:
- you’re unemployed
- you’re eligible to receive a Job Seeker 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
- your working hours were reduced by 20 per cent or more
- if you’re a sole trader, your business was suspended or there was a reduction in your turnover of 20% or more
The eligibility criteria are quite broad, and it seems to cover many of the circumstances that would lead to some form of financial hardship.
What are the consequences?
I’ve had plenty of people tell me, it’s no big deal, it’s only $10,000 (or $20,000), it won’t make much difference to my super over the long term. Financial Planners, by nature, think about the long-term consequences. I know many people don’t like to do the maths, but it’s the only way to actually work out what the long-term consequences are!
So, let’s think about someone with $100,000 in super now, earning $70,000. That person draws both payments, totalling $20,000. In 20 years time their superannuation could be over $60,000 less than it might have been. Now some might say, that’s not too bad, I’ll take it now. But don’t forget, this is your retirement income. To complete the calculation, we then have to look at the flow on effect on retirement income.
The reduced sum at retirement means that retirement money will run out sooner. Depending on how much money you wish to draw in retirement as monthly income, your money could ‘run out’ 2 years earlier than it might have done.
It’s entirely feasible to think that, for a person with 20 years of working life remaining, withdrawing $20,000 now could cost over $100,000 over their lifetime.
I would urge you to either seek professional advice or do the calculations yourself before you act. Most importantly, thing of the long-term consequences.
In these challenging times, I extend the offer of a complimentary consultation via the communication device of your choice.
Rod Lingard is a Licensed Financial Adviser with Lifestyle Connexion and can be contacted on 0400 160 461. Financial Advice is provided by Rod Lingard – Authorised Representative No: 248734 of MASU Financial Management Pty Ltd | AFS Licence Number 231140 ABN: 78 069 358 498.
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.