The federal government says hundreds of thousands of Aussies are looking to access their super early right now. The option to make a super withdrawal is part of the suite of coronavirus stimulus measures, but should you join the rush?
The pros and cons of accessing superannuation early
The obvious advantage of accessing your superannuation early is getting quick access to cash. When businesses and individuals are doing it tough, it's hard to understate this.
That could help to pay your mortgage/rent, any unexpected bills, or school fees at a time when money is tight. That's a pretty attractive offer and it's easy to see why many Aussies are rushing to take out their super.
However, other than that, the benefits of early access to superannuation are limited.
Of course, you have to be eligible for the scheme in the first place. But the real issue is that while times are tough now, the magic of compounding returns works both ways.
Let's say I'm eligible for the program and take my $10,000 super withdrawal. That could be much-needed money for basic living expenses today, and I'm unlikely to be worried about the implications in decades to come.
However, I could be simply kicking the can down the road. A $10,000 super withdrawal now could be worth tens or even hundreds of thousands in 40 years time.
Part of the reason is you end up in a "buy high, sell low" cycle. Selling out of super now crystallises the losses from the bear market crash and means you miss out on potential gains on that money.
That means that I could be disadvantaging myself in the years to come. In fact, many are worried it will widen class and wealth gaps down the line thanks to this pandemic.
Of course, many Aussies have their backs to the wall and there aren't a lot of options. It's not preferable to access superannuation early nor sell ASX shares, but sometimes there aren't many good choices.
Foolish takeaway
Early access to superannuation seems like a silver bullet to many money issues right now. However, if possible, building up other income streams or slashing expenses might be a preferable move to avoid reducing your retirement nest egg and the magic of compound returns.
