Australians experiencing hardship as a result of the COVID-19 pandemic can apply to withdraw funds from their superannuation from today. Eligible Australians will be able to withdraw $10,000 this financial year and another $10,000 in 2020-21. Applications are being accepted via myGov from today, Monday, 20 April.
Super withdrawal warning
But Australians are being warned to think twice before withdrawing their superannuation – money withdrawn now is money that won’t be available to fund retirement. Those who withdraw funds will also likely miss out on growth in the value of the withdrawn funds over the long term.
A 35-year-old that chooses to withdraw $10,000 from superannuation now could end up with around $76,000 less when it comes time to retire. A 25-year-old could end up losing out on $150,000 when they retire. This is based on a retirement age of 65 and an average return of 7%, compounded annually. You can read more about the impact of a $10,000 super withdrawal in this article here.
For this reason, financial advisors have recommended withdrawing superannuation only as a last resort, once all other options have been exhausted. Before withdrawing from your superannuation, you should investigate options such as any available government assistance and a hardship variation on loans.
Large numbers apply
Prior to today, almost 1 million Australians had already registered their interest for early access to their superannuation. While there is no doubt many Aussies genuinely need this money in these trying times, some may be reacting from fear, planning to stockpile the money ‘just in case’.
For those that do withdraw superannuation funds, there is a question about how the funds can be built back up again. It takes a lifetime of work to build a comfortable retirement nest egg. While $20,000 might seem like a small amount now, it could add up to much more over the course of a working life.
According to the Association of Superannuation Funds Australia, it takes an income of $44,000 a year for an individual to afford a ‘comfortable’ retirement, or more than $62,000 for a couple.
If you assume a 5% rate of return on investments, an individual would need to retire with nearly $1 million and a couple with more than $1.2 million to maintain a ‘comfortable’ lifestyle.
Who can apply for a release of super?
If you want to apply for an early release of your superannuation, you will need to be a citizen or permanent resident of Australia or New Zealand. You must be either unemployed or eligible to receive the JobSeeker payment, youth allowance for jobseekers, parenting payment, special benefit or farm household allowance.
Those who have been made redundant or had working hours reduced by at least 20% are also eligible. Sole traders whose businesses have been suspended or had a reduction in turnover of 20% or more on or after 1 January 2020 can also apply.
You can visit the ATO website for more details on eligibility and other important information.