Many people have been affected financially by COVID-19 and the resulting impact on employment. In an effort to support individuals and families, the Australian government has relaxed some of the regulations around early access to superannuation. Up to $20,000 can be withdrawn over the next 2 years if you are eligible. But should you withdraw your super early?
There are obviously pros and cons to doing this, and you should make an educated decision about whether this is right for you.
Who can withdraw their super?
Usually, you can only withdraw your superannuation after the age of 65. Due to the economic implications of Coronavirus, the government has expanded the option to:
- People who are unemployed
- People who are eligible to receive JobSeeker payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit or Farm Household Allowance
- People who have had their working hours reduced by 20% or been made redundant, or sole traders whose business income has reduced by 20% or more since 1 January 2020.
Why would I withdraw my super now?
Obviously, if you’re facing financial hardship, access to the money you have available in superannuation is an attractive option. You have bills to pay, groceries to buy, and practical everyday needs that simply require money. You need cash, and superannuation may be an answer.
One of the benefits of accessing your super now is that the withdrawal is tax-free. This is a big help.
Additionally, the opportunity cost of leaving your super where it is (and allowing it to grow) may be lower than the benefit you stand to receive if you take the money now. In other words, you need the money more now than you do in retirement. This is hard to predict!
Why wouldn’t I withdraw my super now?
Before you consider withdrawing your super, consider whether there may be other ways to get financial help. You may be eligible for a government payment or subsidy, for example. It’s also well worth considering whether you can tighten your budget in the short term and lower expenses.
Another avenue is talking to your creditors and asking what options are available. You may be able to reduce or delay payments or go onto a payment plan. Talk to your bank or home loan provider, real estate agent (if you’re renting your home or business premises), utility providers, and anyone else requiring regular payments.
With the global economy under pressure, stock markets have been performing quite poorly. As this is likely where the bulk of your superannuation is currently invested, withdrawing now may mean you get lower rates of return than if you withdrew when circumstances were better.
Another drawback of withdrawing now is the fact that you will not receive the benefits of compound interest if you were to leave the money where it is. Between now and when you retire, this same amount could be worth quite a bit more, simply because of the interest that’s applied.
It’s also important to consider whether withdrawing your superannuation now could affect your insurance as provided by your fund.
How can QC Accountants Help?
If you have any questions or concerns, the first step is to have a meeting with us to determine how much you could be affected and to identify the options available to you.
We can assist you in understanding your options and help you work through scenarios.
If you decide to go ahead, applying to withdraw your super can be done via the MyGov portal, for free.
We are available on email ([email protected]) or telephone (07 5593 6060).
We understand this is a confusing and potentially alarming time for people and businesses far and wide. We’re here to help you understand your options, and take advantage of all the support available to you.