Cracking your super nest egg comes at a steep cost. If you are tempted to access your super early and take out up to $20,000 of your retirement funds, the advice from industry experts is: “Only do it as a last resort.”
“I’d really weigh the options and look at it as a last resort,” said Xavier O’Halloran, director of Super Consumer Australia.
First, this is not a government handout. It is your money. You’ve earned it. Secondly, if you withdraw money meant for your retirement, you are unlikely to be able to make it up.
An estimated 1.5 million Australians are expected to apply for early access to their super funds to help with their mounting households bills in the face of unemployment sparked by the COVID-19 pandemic.
The fear is that those under 40 are twice as likely to access their super than those over 40, said Industry Super Australia.
The Federal Government made a radical move to allow retrenched workers and those suffering hardship from the COVID-19 crisis access up to $20,000 of their retirement savings over the next two financial years.
This means people can withdraw $10,000 from their super before June 30 and another $10,000 from July 1 to September 24, to deal with the economic shutdown caused by COVID-19. Applications to apply for early access to super funds opened this week.
Only those who are unemployed, eligible to receive the JobSeeker handout and other Centrelink payments or have lost 20 per cent of their working hours or turnover as a sole trader, can dip into their super.
The government has estimated a total of $27 billion will be drawn down but super fund sector fears that the sum could be closer to $50 billion which could pressure some of the smaller, cash-starved funds to do a fire sale of assets to cover payouts – further lowering the value of already depressed asset values or liquidate long-term positions in infrastructure and property holdings, according to The Australian.
This is how Industry Super Australia worked out the long term effects:
* A 20-year who accessed the full $20,000 available under the scheme could lose more than $120,000 from their retirement balance.
* A 30-year-old who assessed $20,000 from their super could lose about $100,000 when they retire.
* A 40-year-old could lose more than $63,000 from their super balance.
“Members should tread carefully and only think about cracking open their super after they’ve taken up the extra cash support on offer from the government – super should be the last resort given the impact it can have on their retirement nest egg.
“It is tempting to tap into your super early, some may want to do so as a savings buffer but nothing in life is for free. Cracking open your nest egg comes at a steep cost,” said CEO Bernie Dean of ISA.
“Members need to know that taking super now is like selling a house at the bottom of the market – you’ll lose money you would probably have clawed back over time,” Mr Dean warned.
The Australian Institute of Superannuation Trustees issued a strong statement saying: “We are urging Australians who are facing financial hardship to access all other sources of income measures before tapping into their super. You should explore every other option before deciding to access your super.”
Financial adviser and Zella director, Victoria Devine said she is worried that Australians may not understand the serious ramifications of withdrawing money meant for their retirement.