Early access to super is a hot topic right now as part of the Federal Government’s coronavirus response measures.
I’m a big supporter of the superannuation system and it’s easy to characterise early access of the scheme as a poor personal finance move.
However, are there any circumstances where accessing your retirement funds actually makes financial sense?
When could it make sense to access your super early?
The easy answer to that is never. I personally think that accessing your super early will make your retirement a lot more difficult.
Clearly, this will be contextual in personal circumstances. However, those in a strong financial position are probably not the same ones that need to access super early or even qualify.
But rather than dismiss the argument out of hand, let’s consider when it might make sense.
The first is when it really is a last resort. While it’s easy to consider investing in ASX shares, many Aussies don’t have a lot of cash to spare right now.
That means that early access to super could be the difference between paying the bills or falling short. Similarly, superannuation could be the key to paying down high-interest debts.
Credit card interest rates can be well in excess of 30% per year. That means accessing some super to reduce that debt could be a smart move.
Aside from absolute need, it could make sense when purchasing a property. Assuming you were eligible, the early access of super could be a good idea to help reduce borrowing costs such as Lenders Mortgage Insurance (LMI).
This is more likely to apply to those looking at the First Home Super Saver (FHSS) scheme. If the present value of the super impact is less than what LMI would cost, it may make sense to access your super early.
Overall, these things are going to come down to individual circumstances.
I think it’s pretty clear that accessing your super early just to spend it on new toys or just blowing the cash is not a good financial decision.
However, if the numbers stack up or there are no other options, using the available early access mechanisms could make sense. It’s worth making sure that you meet the eligibility criteria either under the COVID-19 scheme or the FHSS.
That said, I’m still a big believer in the super system and think it’s wise to use superannuation as a long-term tool for retirement.
I think if you are going to withdraw from your superannuation, consider the market timing. Withdrawing when the S&P/ASX 200 Index (ASX: XJO) is plummeting could be a bad idea.
That means not only are you not realising future gains, but your super is already lowly valued.
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