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By now you’ll be up to date with the news that the Federal Government has allowed unprecedented access to superannuation during the time of the Covid-19 public health crisis.
If you’re in dire straits then it stands to reason that taking out some of your super could provide temporary financial relief in the current crisis. But you really must weigh up the pros and cons carefully.
By Julie Nipperess
In a recent economic stimulus or ‘safety’ package announced by the Federal Government, there’s a provision for anyone in financial duress to access their superannuation. Up to a maximum of $10,000 for the 2019-20 Financial year, and again, if necessary next year.
Of course, if you’ve lost your job and the bills are stacking up, it sounds tempting. And for anyone without any ‘rainy day’ savings to prop them up right now it sounds like a sensible financial rescue plan. But it’s really something you need to consider carefully.
After you have met the Government’s eligibility criteria (outlined here) for the early release of super funds, there is one more condition that you must meet – you must actually have enough in your superfund to withdraw from.
And right now, your super balance is probably not as healthy as you thought it was. The simple reason for this is that all super balances have taken a hit in the past few months because the global investment markets have reacted badly to the international coronavirus pandemic.
Anyone with investments – whether they’re stocks and shares, a managed fund, cash, gold, oil or property – is in exactly the same position, with very few exceptions, apart from anyone with shares in the companies that make things like ventilators and hand sanitisers and toilet paper. They’re doing pretty well.
It’s important to remember that superannuation is not the same as cash in your savings account. If you put $20 in the bank today, and then withdraw $20 tomorrow it has the same value.
Your superannuation is different. It is invested over a number of different and diversified assets. Using the same example, $20 buys investments at a certain value, and the value of these fluctuates in line with market forces. Over time, there will be ups and downs, but generally investments grow, that is, they increase in value. The best time to sell investments or ‘cash them in’, is when they are performing well.
Right now many investments are not doing so well. So if you take money out of your super then you’re effectively ‘cashing in’ your shares at a very low value. And that doesn’t make good financial sense. You’re better off holding onto your superannuation right now, because when the market recovers, your superannuation will too.
Retirement might seem like a long way off. But look at the numbers. For someone in their mid-30s, $10,000 of super could potentially be worth around $60-65,000 at retirement age, based on the average 5.5 percent return of conservative funds for the past 15 years (including the GFC).
In a higher-risk-higher-return portfolio rate, which many younger people tend to have, that figure is likely to be more than $100,000 at retirement, when you consider compound interest.
Explore all of your other options first. Banks are helping anyone with a mortgage or loan by allowing them to put payments on hold for a few months.
Credit card providers, internet providers, and electricity companies all have financial hardship services too.
If you’ve lost your job, you can access the JobSeeker allowance plus the coronavirus supplement. If you’re a small business owner or a sole trader you can access the JobKeeper allowance. There are tax breaks and other initiatives including a rental assistance scheme, details of which are just starting to emerge and we will keep you up to date on.
There is unprecedented access to welfare for people who need it right now. The Government has also promised to remove asset testing and waiting periods. So get online or pick up the phone and talk to Centrelink about what you’re entitled to.
There are many jobs available. Telstra is one company offering thousands of jobs across Australia and many of them are ‘work from home’ positions. The Government’s newly created Jobs hub is also worth keeping an eye on for opportunities, and check your local grocery store – most of the supermarkets are hiring at the moment.
If you have exhausted every option, then consider tapping into your superannuation.
But get professional advice first, and just remember – superannuation is designed to fund your retirement, and all decisions you make with regard to it should have that sole focus in mind. When coronavirus is long gone and the lockdowns are just a memory, you will need your superannuation.
Dipping into your superannuation could also affect any insurance policies you hold within super so make sure you understand the pros and cons before you do anything.
If you need help deciding whether to access your super, or to understand what other options you have, please contact us.
This is general advice and should not be treated as personal advice. Julie Nipperess is an authorised representative of Step Up Financial Group Pty Ltd ASFL No: 512509.