One of the many methods the Federal Government used to keep the economy going during COVID-19 lockdowns was allowing Australians to withdraw funds from their superannuation accounts.
The unemployed, people on JobSeeker, Youth Allowance or similar benefits, or those who’ve been made redundant or had their hours or revenue reduced by 20% since January 1, 2020, could apply to withdraw up to $10,000 during Financial Year 2019-20, and a further $10,000 for Financial Year 2020-21. The money withdrawn from super is not subject to tax.
Just because you may be feeling a financial pinch right now, should you withdraw from your super?
Unintended consequences of withdrawing super
Taking out money from your super account means having to replace it if you want the same amount when you retire. The younger you are, the worse it gets.
Let’s say you’re 25 and earn $52,000 p.a. with the usual 9.5% employer super contribution. You want to retire when you’re 67. Your estimated super balance will be $389,811. If you take that $10,000 out and never make up for it later, it reduces to $365,615. As you can see – $10,000 now will cost more than $10,000 later.
To do a rough calculation of your own, you can access the retirement planner at ASIC MoneySmart.
As markets recover, those who withdrew from their super may miss out on future dividends and returns.
Many superannuation balances may also affect the amount of life insurance benefits you’re entitled to – including total permanent disability or income protection insurance, if applicable.
Many Aussies still financially comfortable: PIPA
According to a study by ME Bank and reported in the Property Investment Professionals of Australia news, Australians are still relatively financially comfortable despite lockdowns and economic slowdowns.
Published on August 1 this year, the report found ‘casual workers, the unemployed, low-income earners, and single-parent household surprisingly reported improvement in financial comfort’. They are less comfortable than higher-earning Australians, however.
The report also found 40% of households were able to successfully apply for coronavirus stimulus measures such as JobKeeper or JobSeeker.
Figures from The Australia Institute show that the JobSeeker Coronavirus Supplement instantly lifted 425,000 Australians out of poverty.
PIPA chairperson Peter Koulizos said that extensions to wage subsidies as well as mortgage payment pauses ‘will benefit homeowners, landlords and tenants who continue to need financial support over coming months,’ he said. ‘It also gives people time to breathe and prepare — rather than starting to panic about how to financially survive post-September.’
Withdrawing super should be a last resort
Savvy CEO and personal finance expert Bill Tsouvalas says that withdrawing from your super should be an ‘absolute last resort.’
‘According to the retirement standard index, a couple needs $70,000 for a modest retirement and $640,000 for a comfortable retirement, if they own their own home and earned 6% returns. Superannuation is supposed to be there when you are no longer willing or able to earn money through work. Though it is exceedingly difficult for people right now, the temptation to withdraw super is high. But tightening your belt and using government subsidies really is a case of short term pain, long term gain. Getting rid of unnecessary expenses and making your dollar go further should be your first priority.’
We recommend that anyone considering withdrawing from their super should consult a financial adviser first.
Disclaimer: This is a general guide only and is not intended as a substitute for financial advice.
Bill Tsouvalas, homely.com.au, 17 August 2020