Last week, the Australian Government made temporary changes that enable some Australians to access up to $10,000 of their superannuation to help with the financial impacts of COVID-19. If you are eligible, you may be wondering whether you should make use of this arrangement. For many, it does make sense. However, there are a few things you should consider before you decide whether it is right for you.
Am I eligible?
First and foremost, of course, is whether you are eligible. You must fall into one of the following categories:
- Currently unemployed, or
- Entitled to receive job seeker, youth allowance for jobseekers, parenting, special benefit, or farm household allowance payments from Centrelink, or
After 1 January 2020 you:
- Were made redundant, or
- Had your working hours reduced by at least 20%, or
- Had your sole-trader business suspended or saw a reduction in turnover of 20% or more.
Do I need it?
For basic living costs
If you need these funds immediately to cover the basic costs of living, rent, mortgage, food, etc., then it’s a fairly straightforward decision. Providing everyday necessities for yourself and your family is a priority, regardless of when you will be able to make up any losses.
For emergency funds
It’s recommended that you have access to the funds to cover around six months of your basic living costs. If you don’t have this emergency fund, you may want to consider making use of this offer to give yourself a buffer, as it’s hard to know what is around the corner as the situation unfolds.
For other financial goals
If you are in the fortunate position that you have financial security, you may want to consider using it to further your other financial goals. Whether this is a house deposit or investing in growth assets at a good time in the market, using this money to further your financial position can give you an advantage – if you can pay it back.
Can I pay it back?
If you have a cash component to your superannuation, taking it straight from this component won’t really make much of a difference. (If you want to know more about the cash component, and why you should have one, you can read more here). However, bear in mind, by taking the cash out now, you may miss the opportunity of making investments into other assets, like shares, at a time of maximum opportunity.
For those without a cash component, you are taking it from your investments at the bottom of the market. That $10K may have been $20K just a few short months ago and may well be worth that again in the not-too-distant future. Taking into account compounding interest and the number of years until you retire, that $10k could easily become $100K over time. It will have a significant impact on your retirement savings if you can’t pay it back quickly.
You should have a strong plan in place to pay it back as soon as possible, whether that is committing to start salary sacrificing $200 a fortnight until it is paid back or putting it back in as a lump sum, pre-tax.
When making your plan, it is critical that you are aware of any thresholds that may impact you. You may also be eligible to make use of other tax offsets and government support, such as co-contributions or spousal contributions, to boost your retirement savings.
Have I spoken to an expert?
Before you make any financial move, it is recommended that you get expert advice, particularly when it relates to superannuation – your retirement nest egg. A wrong move could have an impact that you feel for years to come. Conversely, the right move could put you on the pathway to the retirement you want.
A good adviser will take the time to understand you and your goals to give you the right advice – which generally pays for itself in the long term. At Apt, we structure our clients’ approach to superannuation to ensure that they can weather storms like this one and don’t have to worry so much about Black Swan events.
Whether you are early in your career, already retired, or anywhere in between, it’s never too late to get advice on structuring or making changes to your superannuation.
Accessing your super
If you decide that accessing your super is the right move for you, you need to do so through your MyGov account, first ensuring that your superannuation fund has all the correct bank details and proof of identity documents. Also, bear in mind that the MyGov site has been facing a huge amount of traffic and so you may encounter delays. If you are deemed eligible, the ATO will issue a determination to you and your super fund, who will then pay the lump sum to the account on file.
Whether you can, or indeed should, make use of this arrangement depends heavily on your personal situation and goals. It is strongly recommended that you seek financial advice before making a move that could put your retirement at risk.
General Advice warning
The information provided in this blog does not constitute ﬁnancial product advice. The information is of a general nature only and does not take into account your individual objectives, ﬁnancial situation or needs. It should not be used, relied upon, or treated as a substitute for speciﬁc professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.