Millions of Australians have already accessed their super early due to the impacts of the COVID-19 crisis, however there is a downside to raiding your nest egg – and it could seriously cost you.
The government’s early super release scheme has allowed 2.4 million Australians to access up to $10,000 in superannuation each this financial year, with the option of withdrawing another $10,000 from July 1st.
The latest Australian Prudential Regulation Authority figures show that $17.1 billion in superannuation has been withdrawn already. This is an average of $7,492 per person.
However, RateCity analysis has found that Aussies dipping into their super now may have tens of thousands less in retirement.
The long-term cost of accessing your super early
Millions of Australians have lost their job or are now on reduced incomes as a result of COVID-19, and unfortunately many do not have other options up their sleeve. Early release super money is intended to help them through one of the toughest tests to their finances they’ve had to face.
However, as superannuation is there to support you in retirement, raiding your nest egg may make a serious dent in your final balance.
On Wednesday, round two of the early release super scheme kicks off again, which means many who have already taken up to $10,000 can go and grab another $10,000.
There’s no rule against double dipping, you just need to meet the eligibility criteria, which includes:
- You need to be a citizen or permanent resident of Australia or New Zealand,
- Anyone who is currently unemployed,
- Employees who’ve had their hours reduced by 20 per cent or more, and
- Business owners who’ve had a reduction in turnover of 20 per cent or more.
Cost of withdrawing superannuation early
|Age||Withdrawing $10K||Withdrawing $20K|
Source: Australian Securities and Investments Commission Superannuation Calculator. Notes: Assumes income of $50k and retirement at 67. See full assumptions at the end.
RateCity analysis found that an average 30-year-old who takes out $10,000 now may have $21,516 less in retirement.
Further, that same 30-year old who now plans on taking out an additional $10,000 on Wednesday could be over $43,000 worse off at retirement.
This analysis shows that the younger you are, the bigger the impact withdrawing super early may have on your final balance at retirement.
- If you are planning on accessing your super early, make sure you meet the eligibility criteria before applying. There are fines of up to $12,600 for making misleading claims.
Ways to minimise the damage
If you’ve already accessed your superannuation early, it goes without saying that you need to be careful how you spend it.
You’ll want to do your best to avoid accessing your super just to rack up debt again or spending it on things like gambling.
What to consider when spending your early super release funds:
- Only take out what you need and use the money wisely. This is your nest egg. Don’t use it as an opportunity to buy a new TV.
- For people who use it to wipe their credit card debt, don’t make the same mistake twice. Cut up the card and close your accounts so you don’t start the debt process again.
- 70 per cent of Australians have life insurance through their super. If your balance is too low, you might lose it. Check with your super fund what the minimum balance is to qualify for insurance.
- Once your finances have settled again, consider salary sacrificing or making contributions back into your super to replenish your nest egg.
- The estimates provided use the assumptions and default values from ASIC MoneySmart's Superannuation Calculator based on an income of $50,000.
- The estimates provided are shown in today's dollars, which means they are adjusted for inflation by 4.0 per cent p.a. (2.5 per cent p.a. due to the rising cost of living [CPI inflation] and a further 1.5 per cent p.a. for the cost of rising community living standards).
- Investment returns are defaulted to an assumed rate of investment return before tax and fees of 7.5 per cent p.a.
- Investment fees are assumed to be 0.85 per cent p.a.
- Assumed tax on earnings is 7.0 per cent.