It might be the first time in your life that you’re really thinking about your super.
If you’re under the age of 40, you’re twice as likely to access your superannuation early under the new rules, according to Industry Super Australia.
More than 1 million Australians have already applied to dip into their retirement savings, taking out an average of $8,000 each.
It’s really no surprise. Coronavirus has affected our finances in many ways.
But while it may help you in the short term, what are the cons?
Here’s what you need to know.
Remind me: what’s this early super release all about?
Put simply, we usually wouldn’t be able to access our super until we reach retirement age.
But because of the huge financial impact of coronavirus, the rules have changed.
People can access up to $10,000 this financial year and a further $10,000 next financial year if they are unemployed, on Centrelink, had their work hours reduced by 20 per cent, or if their business turnover is down by at least 20 per cent.
The money won’t be taxed and it will not affect Centrelink payments.
So, what’s the benefit of taking it out now?
Well, it helps in the short term if you’re genuinely cash-strapped because of the impact of COVID-19, says UTS academic Rosalie Degabriele, who specialises in superannuation.
“It might be worth accessing if you genuinely think you can’t live day-to-day and you don’t have an alternative,” she said.
But don’t do it unless you have to, she warns.
“It’s not a gold mine, it’s not a windfall,” she added.
What about the cons?
Essentially, you’re robbing your retirement savings.
“It’s like raiding your future to help your today,” said Women in Super chair Cate Wood.
This is an even greater problem for women, she says.
It’s really dire for women. Women are already retiring with 40 per cent less super than men — this is going to make their savings even less.
Models have shown an impact of between $30,000 and $90,000 when it comes to retirement (depending on your age, starting balance and returns).
That’s because you’re missing out on the benefit of compound interest.
“The earlier you save and the longer the money is in there, the money itself works for you by earning interest,” said Ms Wood.
“You earn interest on top of that interest.”
Most people’s super is invested in a balanced fund and has a mix of investments such as Australian shares, international shares, bonds, property, infrastructure and perhaps cash.
But with the economic impact of COVID-19 and fears of a recession, investments have lost money in recent months.
For example, the ASX200 fell 30 per cent from its peak in February and has only partly recovered.
So cashing out your super now makes those losses real.
Your investments were probably worth more a few months ago and you won’t have the opportunity for them to increase in value in the future.
“If you take the money out now, you’re taking it out at that devalued level: the potential you might earn on that money as the share market improves over time — that opportunity is lost to you,” Ms Wood said.
Also, your insurance might be cancelled.
Be aware that if you withdraw your full super balance or do not have enough left to pay for premiums, it might affect your life, total permanent disability or income protection insurance.
Here’s what to do instead
“Every single other option should be explored,” Ms Wood said.
“Access to Jobseeker, Jobkeeper or any other Centrelink payments and also rent relief.”
If you still can’t pay the rent, it’s best to negotiate with your real estate agent or landlord for a reduction.
ASIC has actually warned real estate agents against telling tenants to use their super to pay the rent.
If you’ve got a mortgage or other debts, you may be eligible for financial hardship arrangements through your bank.
“Go to the banks first and don’t be embarrassed to do so,” suggests Rosalie Degabriele.
Utility companies also have special arrangements for people who can’t pay their bills.
“You need to think carefully about if it is your only option — and certainly make use of all the assistance and support and relief you can before accessing your super,” Ms Wood said.
DISCLAIMER: This is general advice only. If you need individual advice, please see a professional.