Apr 16, 2020  | Tags: Superannuation, covid-19

Our Insights

The Australian Government has announced a new measure allowing people affected by COVID-19 to withdraw up to $20,000 from their superannuation fund without being taxed. 

While this may seem like a great solution to those who are struggling financially, it could come at a big cost down the track. 

Every situation is different and maybe this is your only option to survive. But it is highly recommended to get professional advice and exhaust every other option before you pull funds out of your super.

Here’s why.

The process

This measure allows you to withdraw up to $10,000 from mid-April, and then another $10,000 in the new financial year (from 1 July 2020). Those who believe they will need to withdraw both amounts will have to apply through myGov within six months from the April 20 start date.

To be eligible to access your super funds, you need to: 

• Be unemployed
• Be receiving some form of Centrelink or JobSeeker payment, such as youth allowance, parenting payment or farm household allowance
• Have had your working hours reduced by at least 20%
• Have had a business income reduction of at least 20%
• Have been made redundant 

What are the consequences?

Drawing from your super will undoubtedly get you out of a tight spot during the next few months, but it comes at a price. You could be putting your retirement in jeopardy and create long-term financial issues which could be hard to recover from.

You may be gaining $20,000 now, but you’re ultimately losing so much more in the future. Withdrawing money from your investments now, when share market prices are in a decline, means you’re receiving much less value compared to when the stock market goes back up.

Previous major stock market crashes and global events have eventually seen the stock market bounce back again, so it’s highly likely this will occur again post COVID-19. Therefore, holding onto your super now and having it tough for a few months will give you much greater benefits in the future.

Withdrawing your superannuation may affect your insurances covers like, Income Protection, Life, Total Permanent Disability Insurance. Insurance may not be available on accounts that are fully withdrawn or have a balance that falls below $6,000. This is important to consider and if you need to, seek financial advice before starting your application.

 

How much could you be losing?

Experts are predicting that you could potentially be losing more than triple the amount you extract now by the time you reach retirement. An analysis conducted by Industry Super Australia (ISA) shows the following retirement fund losses for individuals who extract the full $20,000 from their super:

• A 20-year-old could lose more than $120,000
• A 30-year-old could lose around $100,000
• A 40-year-old could lose more than $63,000

These figures are significant and will define your retirement lifestyle. With such high long-term stakes, you need to thoroughly consider whether it is worth sacrificing this money for a few months comfort now. Remember, while the COVID-19 crisis may last a few months, your retirement will last for years.

Get Advice

Before you consider drawing from your super, you should consider every other possible option available to you. Find out which other payments and financial support packages you could be eligible for.

Always seek professional advice from an experienced financial advisor who can guide you through these difficult times, have a better understanding of your specific financial situation and wealth goals, and weigh up the pros and cons of you drawing from your super. 

However, if after expert consultation, drawing from your super is your only solution, consider an increased repayment plan once you’ve regained your regular income and cash-flow. By putting a higher percentage of your income into your super, you ensure you make up for what you’ve taken out and minimise your risks of financially suffering in retirement.

Talk to the team at Calder Wealth Management. Call us on (08) 8373 3333 to schedule your free initial appointment. 

Written by James Herriman at Calder Wealth Management.

This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own  circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.