In light of the COVID-19 pandemic, the Federal Government has announced an early release of superannuation as part of their assistance to Australians who are faced with financial difficulties. Eligible applicants can receive up to $10,000 from their super between mid-April and July 1 and receive another sum up to $10,000 for 3 months. If you’re facing financial hardship due to the growing pandemic, then accessing your superannuation early may be a viable option. However, there are a couple of things you need to know as cashing in your retirement funds will impact your savings for when you retire.
The big question is, should you access your super early to obtain urgent funds? In this article, we’ll be discussing everything you need to know about withdrawing your superannuation early and the potential risks that go along with it.
Eligibility for early access of super
The Australian Government Treasury has released guidelines on eligibility requirements for early superannuation access. To apply for this new scheme, you need to meet one or more of the following criteria:
For citizens and permanent residents of Australia and New Zealand
- Currently unemployed
- Eligible for government benefits (i.e. jobseeker payment, parenting payment, youth allowance, etc.)
- Made redundant on or after Jan. 1, 2020
- Working hours reduced by 20% on or after Jan 1, 2020
- For sole traders, had their business suspended or had a turnover reduction of 20%
For temporary residents
- A student visa holder for more than 12 months and currently unable to meet living expenses.
- A temporary skilled visa holder that’s still under employment but unable to meet living expenses.
- A temporary resident visa holder who’s unable to meet living expenses.
While there are no requirements in attaching supporting evidence to your application, it’s important that you keep relevant documents and information to confirm your eligibility. Be truthful and transparent when applying for early superannuation access as there will be penalties for making false claims and statements.
Risks associated with accessing your superannuation early
Accessing your superannuation early is a big decision and one that requires careful planning and consideration. Before you apply for this new scheme, here are a couple of risks that you should be aware of.
- Impacting your retirement
Accessing your superannuation early can drastically affect the quality of your retirement. There are two factors worth noting, and these are; how close you are to retiring and your superannuation balance. The Association of Superannuation Funds of Australia (ASFA) estimates that a single person may need $545,000, in their super while a couple may need $640,000 to live comfortably. They found out that withdrawing $20,000 from your super can have devastating effects over the long term.
This is because your superannuation is a form of investment, with super funds actively investing your retirement savings for you so that your balance grows over time. Therefore any money withdrawn from your superannuation account won’t have the benefit of this growth, unless you choose to actively invest it.
- Insurance cover
Before withdrawing your super early, we recommend talking to your superannuation provider to confirm if you have any insurance cover that may be affected. Keep in mind that your insurance may be cancelled if you don’t have sufficient funds to pay for your premiums.
Although it can be tempting to reach into your superannuation early, it does come with its own downsides. We recommend that you only access your super early as a last-resort effort to avoid jeopardising your retirement. If you’re still unsure about your decision, feel free to contact any one of our team at Sterling Debt Advisory to discuss your situation and receive tailored advice.