Considering digging into your Superannuation during Covid-19? Read this first.
Wondering how or even IF you should access your super during Covid-19? We share advice from local Financial Planner – Brett Frampton of Frampton Wealth as our guest blogger.
A lot has happened in the past few weeks, let alone the past few days and it would be fair to say there is still a lot more to come that will affect all of us in a negative way from the lifestyles that we have been used to living!
Our hearts go out to the many people who have lost their jobs through no fault of their own and have been forced to endure long and frustrating waits applying for Centrelink Benefits.
That takes me to a particular topic that the government recently announced, being the ability to withdraw tax free $10,000 from your super fund both this and next financial year.
Eligibility is based on losing your job after 1st January 2020, having your working hours reduced by 20% or more and if you are a sole trader having your business suspended or a reduction in turnover of 20%.
To claim, you must apply to the ATO (they expect to have the process ready by mid-April) and make a declaration to confirm your eligibility. Don’t be surprised that the ATO will be checking this to determine eligibility and fine people if they make false declarations.
Whilst this may be a life saver for many, it is important to understand the impact this may have to your super balance in your retirement.
Consider the following:
- Marcus is 30 years old and worked in Hospitality and sadly lost his job.
- He has $50k in super.
- Marcus is thinking of taking $10k from his super this financial year and next financial year for a total of $20k.
- If we use an average return of 7% we expect your funds to double every 10 years (the rule of 72).
Marcus’s super would be impacted as follows by withdrawing $20k over the following years:
- 10 years’ time at age 40 it would have cost Marcus $40k in lost earnings and capital
- 20 years’ time at age 50 it would have cost Marcus $80k in lost earnings and capital
- 30 years’ time at age 60 it would have cost Marcus $160k in lost earnings and capital
- 40 years’ time at age 70 it would have cost Marcus $320k in lost earnings and capital
This highlights the significant impact any super withdrawals will have on the balance of one’s super in the years ahead.
Whilst it may be necessary for some to use super as a last resort, it is very important that all other options are explored as it should only be treated as the ultimate last resort.
Reach out to a quality financial adviser, accountant or mortgage broker to ensure that all avenues have been exhausted prior to committing to one action or another.
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