Withdrawing Your Super Early: Is it Worth it?
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Withdrawing Your Super Early: Is it Worth it?

Tyla Els

Tyla Els

26/03/2021 • 6 minute read

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Withdrawing your super early

It all sounds great, doesn’t it? Imagine waking up to a cool $20,000 in your bank account? We’ve all considered it, and if you’re under 40, statistics show you’re twice as likely to withdraw your super. There’s a lot to think about when deciding whether or not to withdraw your super early (in some cases 30 years early). Most of us have been, or still are, struggling financially from COVID 19, and some extra money to pay off debts, or maybe buy a new car, sounds simple and appealing. There’s a lot to think about before you access your super, namely the long term effects of early super withdrawal.

There’s a great deal of conflicting information surrounding the debate of early super withdrawal and let’s be honest, it can be quite confusing. So here’s a breakdown of the whole situation and some pro’s and con’s to help give you a better understanding.

What exactly is super?

Super, short for Superannuation, is the money put aside by your employers throughout your working life for you to live off when you decide to retire. Since July 2014, businesses have been required to pay a minimum of 9.5% of your earnings to your super account. This percentage continues to rise and is a law referred to as the super guarantee. The more money accumulated and saved now, the more retirement money you will have.

The government has strict restrictions in place when it comes to accessing your super to ensure that there are savings for each individual when they retire. Usually, super can only be withdrawn when you retire or turn 65, but with the unprecedented circumstances caused by COVID 19, things have changed.

COVID-19 and super

From April 20, PM Scott Morrison and his government allowed Australian individuals that met specific criteria to access up to $20,000 in super and to remove the funds tax-free due to the financial hardship caused by Covid 19.

To be eligible for the super withdrawal, individuals must be either unemployed, retrenched or eligible for welfare payments, including Job Seeker, Youth Allowance, Parenting Payment, Special Benefit or Farm Household Allowance. Those with a 20% reduction in working hours or sole traders whose business turnover has dropped by at least 20%, are also eligible for the early withdrawal of super.

The first $10,000 instalment was available for individuals between April 20 and July 1 and the second instalment became available following this date and is expected to be available until mid- October.

As of mid-May, over 1 million Australians had accessed their super, with an average of $8000 being removed per individual.

The pros

If you are genuinely strapped for cash and feel as though COVID 19 has seriously affected you financially, withdrawing your super might be the only option. Your super money might allow you to continue paying off debts or loans or possibly build an emergency fund if income is not sufficient. This is also likely to be one of the only, if not the only time you will be able to have early access to your super tax-free.

The long term effects of early access to super

If you don’t need to access your super, don’t. Try where possible to use the other government support payments that have been put in place for the COVID 19 crisis.

Essentially, withdrawing your super money now means you are robbing yourself of thousands of your retirement dollars, that you will rely on one day. You might think it will help you today but the disadvantages of doing this will catch up with you when you need it most.

Super funds work on a system known as compound interest, meaning that the longer your money sits in the account and the more it builds up, the more money you will end up with later down the track. It is interest on top of the usual interest and principal sum.

Majority of Australians have investments and shares that are paid through their super funds. Obviously, these have all declined with Australia’s recession. Withdrawing your super while the shares and investments are at their lowest, means you are removing the opportunity for these to build back up in the future when the share market improves, which over time is inevitable.

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Another important thing to remember:

If you withdraw your full super or do not have enough left to pay the associated premiums, your life, permanent disability and income protection insurance may not be covered anymore.

According to ASFA (Association of Super Funds of Australia) Australian individuals will need on average $545,000 to retire comfortably. It is worth considering future events that may arise causing you to retire early or take time off work, reducing your super and retirement income. Events could include illness or injury, gap years or maternity leave.

Super withdraw estimator – Money Smart

Current Age Retirement Age Withdrawal Amount  Reduction to Super at retirement age
21 60 $5000 $11,210
21 60 $10,000 $22,421
30 60 $15,000 $27,942
30 60 $20,000 $37,256

The average 2018-  2019 retirement age was 55 (Australian Bureau Statistics)

Alternative financial assistance options

Be sure to look at all other options before withdrawing your super as it is not the only option available in these hard financial times:

Government payments

There is plenty of assistance being provided by the Australian government to those who have been negatively affected by the financial impacts of COVID 19. All income support payments have criteria that must be met in order to receive financial assistance. Applications for these support payments are to be done through Services Australia, via phone, online services or in-person at a local Centrelink Service Centre. Before applying for one of these, check with your employer that they are not eligible for Job Keeper. If the business’ turnover is more than 30% down since the months leading up to the pandemic they will be eligible for Job Keeper. If a business is eligible, all staff who are full-time, part-time or casual for the last 12 months are able to receive the Job Keeper payment of $1500 a fortnight or $1200 a fortnight after September 28.

Job Seeker is the most popular support payment at the moment with an estimated 1.4 million Australians utilising the scheme. The payment offers financial help to those actively looking for work between the ages of 22 and pension age. It also provides support for those injured or sick.

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Services Australia also offers the following support payments to those eligible and in need of financial assistance:

  • Partner allowance
  • Widow allowance
  • Sickness allowance
  • Youth allowance
  • Austudy
  • ABSTUDY living allowance
  • Parenting payment
  • Farm Household Allowance
  • Special Benefit

Financial help from your bank

Contact your bank’s financial hardship team as they may be able to assist customers, especially through COVID 19. You might be able to change your loan terms, reduce or even pause your repayments.

Rental assistance

Talk to your real estate or landlord for a reduction in rental prices if you cannot afford the full cost at the moment. Utility companies have also put special arrangements in place for individuals financially struggling due to COVID 19.

Other helpful resources:

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At Oiyo, our mission is to provide Australians with the helpful information they need to make informed decisions. If you’re looking for more information on what to bring or what to remember on your holiday, why not check out some of our other articles here.

Oiyo is a consolidated online resource, we are not financial advisors. We work with a range of industry professionals and compliance check our articles to ensure factual accuracy. However, we do not provide professional financial advice. Consider seeking independent legal, financial, taxation or other advice to check how the information and ideas presented in this article relate to your unique circumstances.

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Tyla Els

Written by Tyla Els

Tyla Els is a contributing writer for Oiyo, covering the latest financial "hot" topics. She is a passionate freelance writer and editor covering a wide range of topics for multiple platforms. Tyla holds a Bachelor of Journalism, majoring in public relations.

More about Tyla Els

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