We’ll cut to the chase. If you withdrew $10K from your superannuation fund in 2020 (or, if you took the government up on their offer to take $20K), you’re definitely not alone.
The scheme has now closed, but while it was alive and kicking, nearly three million Aussies took a total of $36 billion out of their super accounts, according to the Australian Taxation Office (ATO). That’s a huge figure, no doubt, but when you consider how much those chunks of change could’ve become while sitting comfortably in our super accounts over the next few decades, it’s staggering.
Before you turn away, no, we’re not about to shame anyone. Hell, we really aren’t experts in superannuation (shocker, I know).
Instead, we asked Renae Anderson, Head of Financial Advice at CareSuper, to explain exactly what the scheme was, how much that money would have been worth if you’d been able to let it stay put, and how to fix the situation so you’re cashed up when you retire.
PEDESTRIAN.TV: First thing’s first, can you please explain how and why people were able to access their superannuation in 2020?
Renae Anderson: Super is there to help fund your retirement, so you are less reliant on government support later on in life when you’re no longer working. It’s generally quite difficult to access that money until you retire . . . that was until the COVID-19 global pandemic, when the government temporarily changed the rules around accessing super, to help people access emergency funds.
If you were unemployed, receiving government support or working reduced hours because of the impacts of COVID-19, you may have been eligible to access up to $20,000 of your super. ($10k each, in two applications).
PTV: So, what made the withdrawals different from any old withdrawal we could make usually?
RA: Generally, you’re only able to access your superannuation benefit if you reach your preservation age and retire, you turn 65, you’ve been approved for early release of super on compassionate grounds, you are in severe financial hardship, or you meet other criteria set by the Government.
Tax you pay on your super when it’s released depends on various things like the type of claim, your age and the whether you are receiving the funds as a lump sum or as income. But payments for the COVID-19 early release were tax-free and did not affect Centrelink or Veterans’ Affairs payments.
PTV: Are there any long term implications of taking the $10K (or $20K) from your super account?
RA: The longer-term consequences of withdrawing money now are that you lose out on the benefits of long-term compound interest. If you were 25 years old, and you withdrew $20,000 you may have lost up to $95,696* in super savings by the time you retire.
Your $20,000 invested in super would have grown over the long term. By taking it out, you’ve missed out on the compound interest and long-term growth you would have had on the funds. If you’re 35 and withdrew $20,000 you may have $65,868* less than you would have if you had left it invested until you are 67.
PTV: Now that we know exactly what damage we’ve done to our super accounts — albeit, for incredibly valid reasons — what can we do to fix the situation?
RA: Regardless of your working situation, there are still options available to maximise your future financial outcome. It’s about making the best use of what you have and being confident that you are doing all that you can. Three things that contribute to your best super outcome are:
- Don’t have more than one account. Choose a top-performing super fund and stick with it. Stop paying multiple fees to multiple funds. Editor’s note: we’ve all started new jobs and just jumped into whatever fund the company uses, but combining your super is key to getting max gains. The ATO has a clever little tool that helps you find any lost super so you can transfer it into the one account.
- Contribute extra if it’s right for you. If you don’t like the track you are on, every little bit you contribute going forward can help. And the earlier you start, the more you’ll save. There are a few ways to do this: make extra contributions from your before-tax pay (ask your employer about this), extra contributions from your take-home after-tax pay, spouse contribution, government co-contributions, or maybe a combination of all of these. Basically, try to have as much as possible saved by the day you stop working.
- Maintaining good investment returns, and not making emotional switches that lock in losses. Work out a long-term strategy with expert help and review when your circumstances change to ensure it stays within your own investment risk profiles and objectives. Members of funds like CareSuper can get advice about investment options (which are usually included in your membership) over the phone. Use the help of an expert to understand the basics and make good decisions – other members are doing this every day.
*Modelling was performed on 9 November 2020 using data as at 30 June 2020. See assumptions used at https://www.industrysuper.com/assumptions/
The information provided in this article is general advice only and has been prepared without taking into account your particular financial needs, circumstances or objectives. You should consider your own investment objectives, financial situation and needs and read the appropriate product disclosure statement before making an investment decision. You may also wish to consult a licensed financial adviser.
CARE Super Pty Ltd (Trustee) ABN 91 006 670 060 AFSL 235226 CARE Super (Fund) ABN 98 172 275 725Image: E!