We all know that money doesn’t buy happiness, but it can make life a little lighter.
In today’s “Make it Count” blog, our Financial Services team are helping you understand your entitlements with regards to accessing your superannuation because of COVID-19.
Southcare’s Financial Counsellor Duncan Edgar said the rules regarding super have changed and there is now an option for some people to immediately access their superannuation funds.
“With the disruptions to the job market caused by COVID-19, the Government has eased the rules around early access to super,” Duncan said.
“The changes are immediate – there is an opportunity to access $10,000 from 1 July.”
Those who can access their super early include:
- unemployed people
- those eligible to receive JobSeeker payment, Youth Allowance for job seekers, Parenting Payment, Special Benefit or Farm Household Allowance
- those who’ve been made redundant or had their working hours reduced by 20%, or sole traders whose business has been suspended or faced a reduction of 20% or more since 1 January 2020.
Should you access?
While these changes may be welcome news for those that need immediate access to funds, just because you can access your superannuation doesn’t necessarily mean you should.
Some of the possible downsides to withdrawing superannuation now include:
- The super is being withdrawn just when the market has dropped significantly and the amount in your super account has also taken a dive. Markets go up and down (and so does super). You may miss the chance of seeing the markets go up again.
- Withdrawing super now will mean that you will miss out on the compounding interest that goes with having money in superannuation and therefore may mean missing out on significantly more money in the future. Conservative modelling indicates that a 30-year-old withdrawing $20,000 in superannuation will be over $49,000 worse off at retirement.
- Many super accounts have insurance attached to them such as Income Protection and Total and Permanent Disability Insurance. If the balance of the super account falls below $6,000 after withdrawal, you may lose the insurance included with the super.
- Having access to this amount of cash can encourage impulse spending which may not be of any long-term benefit.
- Using superannuation as a band aid may only cause further problems in the future. For example, it makes little sense to pay off a credit card if you then continue to use the card to meet living expenses and end up in the same financial predicament you started in.
Of course, for some people, accessing the money from super now may be more valuable than in retirement, particularly if those funds can provide something life changing such as urgent medical treatment or to pay for accommodation.
Similarly, if you are close to retirement age and unlikely to work in the future, the funds may be of more benefit accessed now when it is tax free to improve your quality of life.
“If you do decide to access your superannuation early, be aware of scammers, particularly when applying, and ensure you submit the application through www.my.gov.au,” Duncan said.
“Remember too that the accessed funds are tax free, but please be aware that not all superannuation funds allow for the early release of funds.”
Southcare provides a free and confidential financial counselling service, offering advice to help you manage during difficult financial situations.