Rebuilding Retirement after Early Access – it doesn’t have to be short term gain for long term pain…

Rebuilding Retirement after Early Access – it doesn’t have to be short term gain for long term pain…

Superannuation is for retirement

This concept is not new or nor foreign. Under exception circumstances the Federal Government has allowed early access for up to $10,000 before 30 June 2020 and up to $10,000 within the initial 3 months of the 2020-2021 financial year (1 July  2020 – 30 September 2020) for those who face financial hardship caused by the COVID-19 Pandemic. There are specific strict eligibility criteria required to access your superannuation for good reason – under normal conditions early access can only be achieved under strict conditions including compassionate grounds or financial hardship – which typically means you’ve been relying on social security benefits for at least 6-months. 

The caution is: a bird in the hand now, may leave the retirement nest de-feathered when it is needed.

Difference of $20,000 early withdrawal can have on your Superannuation Account Balance
Starting AgeStarting BalanceDifference
25$20,000-$102,824
35$60,000-$68,245
45$95,000-$45,347
50$110,000-$36,940

Source: www.canstar.com.au – 21/05/2020. For full underlying calculations, projections and assumptions, contact our office on (03) 51 410 055 or go to our website www.freshwaterfinancialplanning.com.au

3 Impact Considerations:

  • Less Money in retirement – as illustrated above, if you can avoid withdrawing retirement funds now it can potentially make a significant difference on your balance when it comes to retirement. Exhausting other options if possible may leave you with a sustainable short term living position and a better long term retirement outcome.
  • Super Investments have taken a temporary hit – Chances are, if your superfunds underlying investment option/s have exposure to shares or property, it is probable that your super balance taken a hit in the short term due to recent heightened market volatility. Meaning your super balance has likely dropped in value and selling investments while markets have depreciated can make it harder to claw back overtime. Ask yourself the question: would you sell your house at the bottom of a property market? Perhaps if you were forced to, but if you had the choice – I dare say you would wait for a recovery.
  • Loss of Insurance – anun-intended consequence of this withdrawal strategy is if your superannuation withdrawal results in your superannuation balance falling below $6,000, under new regulation your insurance cover (Life Insurance, Total & Permanent Disablement Cover, Salary Continuance) within your superannuation fund can be automatically cancelled by the Trustee if you do not opt-in to retaining it.

Recovery Tonic:

The good news is, it doesn’t have to be a trade-off between the importance of making life work for ‘the now’ and ensuring you can have the retirement you desire. If you decide to withdraw funds from superannuation to meet living costs it will be important to consider strategies which can get you back on track to meet your retirement goals.

There are a number of strategies which may be available including:

  • Salary Sacrifice contributions
  • Government Co-Contributions
  • Spouse Contributions
  • Personal Tax Deductible Contributions
  • Catch-up Concessional Contributions

As each strategy has specific requirements, eligibility and potential taxation consequences – it is important to seek professional tailored Financial Advice to understand what will work best for you in your circumstances.

If you want to protect your financial future with the right retirement strategies, give Carl Freshwater a call on (03) 5141 0055 or find out more at www.freshwaterfinancialplanning.com.au.

Carl is a highly qualified financial adviser from the East Gippsland area and has been working with clients for more than 15 years to meet their financial goals.