If you are suffering financial hardship as a result of the coronavirus pandemic you are allowed to withdraw $10,000 before June 30 and another $10,000 between July 1 and September 24 out of your superannuation account to help you through the hard times.
The temporary early access is one of several assistance measures aimed at supporting people through the current crisis, but like some of those other measures, there are pros and cons.
Superannuation is designed to help you save for retirement and so is usually locked away until you’re aged somewhere between 55 and 60, depending on your date of birth.
Before you spend too much time deciding if making an early withdrawal from your super is a good idea for you, you should check if you’ll actually be allowed to.
How to access your super
If you’ve lost your job or your working hours have dropped by 20% or more, then you can tap your super early. For the self-employed, the test is a drop of 20% or more in income. There is more information located on the Australian Taxation Website early release of superannuation page.
The unemployed or those eligible to receive benefits including Job Seeker, Youth Allowance for Job Seeker or the Parenting Payment can also tap their super.
If you are eligible, you will be able to withdraw $10,000 before June 30 and another $10,000 between July 1 and September 24.
To apply, you go to the Australian Tax Office which will then contact your superannuation fund.
But first, you should consider if it is a good idea for you, because it could reduce the amount of super you have when you retire.
Who should access super?
Mark MacLeod, the founder of personal superannuation tracker Rollit Wealth, says you should consider early access to your super to be a last resort, and only if you are facing financial hardship and the money will be crucial to your financial health.
Before you take this step, you should understand what it means for your super balance when you retire.
MacLeod describes taking $10,000 of super out of your account as a “double whammy” because not only have you reduced your super balance by this amount, you have also lost about $10,000 in investment returns you could expect that money to earn over the next 10 years.
You are also taking your money out of investments such as shares and infrastructure when markets are low, meaning you will miss out on the profits from an eventual recovery.
What you should do first
If you’re having financial difficulties, there are a few things you should do before you tap into your super, says MacLeod.
Mortgage holders should contact their mortgage broker to help them get a lower interest rate from their lender or find a new lender offering a better deal. For a quick health check of your home loan, sign up to loanScore. It’s a free tool that tells you how good your rate is, and if there are savings you could be making.
You also have the option of applying to your lender for a ‘mortgage holiday’, where your repayments are paused. It’s important you know the facts before applying for a holiday, and you can read more on this HERE.
For renters, it’s a good idea to contact your landlord to see if you can negotiate some temporary rent relief or start looking for a property with lower rent.
If your tenant has asked for rent relief, here is some advice on how to manage this.
Next, have a look at your expenses and understand what you’re spending money on and where you can cut back or make savings by seeking better deals on things like phone plans, power and insurance.
MacLeod says the biggest impact on most people’s super balances is if they don’t pay attention to where their money is invested. Investigate the performance of your fund and if it measures up to other similar funds, and if not, consider switching funds.
This can help you make up the balance of any super you have withdrawn, but even if you haven’t taken any money out, it’s a good idea.