Is accessing your super early (due to the pandemic) a smart move?
From April this year, many Australians were eligible to tap into their superannuation to the tune of up-to $20,000 ($10,000 in FY 2020 and $10,000 in FY 2021). This was put in play by the government due to the impact on the job market caused by the COVID-19 virus.
More specifically, people eligible to access their super earlier include:
- you are unemployed
- you are eligible to receive one of the following
- JobSeeker Payment
- Youth Allowance for job seekers (unless you are undertaking full-time study or are a new apprentice)
- Parenting Payment (which includes the single and partnered payments)
- Special Benefit
- Farm Household Allowance
- on or after 1 January 2020 either
- you were made redundant
- your working hours were reduced by 20% or more (including to zero)
- you were a sole trader and your business was suspended or there was a reduction in turnover of 20% or more (partners in a partnership are not eligible unless the partner satisfies any other of the eligibility).
- Source: ATO – https://www.ato.gov.au/individuals/super/in-detail/withdrawing-and-using-your-super/covid-19-early-release-of-super/#Eligibility.
But just because you may ‘qualify’, is drawing on your super the right thing for you to do right now?
There are pros and cons to most everything in life, and this is no exception.
For starters, the money in your super is supposed to help you prepare for the future. Depending on your age, a $10,000 or $20,000 hit can have a significant impact on the compound growth that money can generate over a period of time. That same amount of money could be worth double the value in retirement – or more. Furthermore, there may be other government or financial assistance options you can access. So whilst early access to super may be right for some, it may not be what’s best for you.
It’s also worrying to see that some people are drawing on their super for things like cosmetic surgery, purchasing luxury items such as a new TV, computer or tablet and other non-essential items.
And before you pull the trigger on pulling out some of your super, how closely have you looked at your discretionary spending? Are you truly stuck or are there areas in your spending you could cut back on, even if only for a short time? Just how many gin and tonics do you need of an evening?
On the flip side, money accessed now through this government incentive is tax-free. Also, a shortfall in superannuation may qualify you for the aged pension (though hardly an aspirational move – most agree it’s not much).
Determining if early access to some of your super is right for you should be a decision you make once you have considered the options (and ramifications). It’s an option for those genuinely stuck financially or experiencing financial hardship and looking for some breathing space. You shouldn’t be looking at this as some free money with which to go on a shopping spree.
If you need it, there is a free service at the National Debt Helpline where you can get some free advice. Their number is 1800 007 007. The financial councillors there are trained and ready to help people who may be experiencing anxiety over their work and financial position.
This number for this helpline is 1800 007 007. You can also visit their website at www.ndh.org.au
The information provided herewith is general only and not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.