Reconsider before cashing in your super early. Even if you can, try not to. – Here’s why…

It’s easier than ever to access $20,000 of your super right now (before you retire), so there are two camps that you might fall into:

1. You could certainly use the money, but can probably get by without it, but why not? They’re offering and I’m taking – besides, it’s my money anyway; or
2. You have no other choice. You have exhausted every other source of income, and now need to consider cashing in some of your super, just to live.

If this is you, please get in contact with us, so we can make sure that you have maximised any government benefits, loan repayment holidays, rates and taxes deferrals or anything else on offer, to help you get through these really tough and sometimes heartbreaking times.

If you fall into category 1, the question is no longer Can I, but Should I lean on my super for some short-term cash? You can take out up to $20,000 in total by withdrawing $10,000 before June 30 this year, and another $10,000 in the three months after 1 July.

We strongly urge you not to – Why? 

• Because if you spend your super, you are not just spending money you saved, but you are spending money that was building, or compounding for you, inside a tax-protected environment.
• You can never get that compounding effect back again.
• If you take it now, you are selling into a massive market downturn, where share prices are a third lower than they were in early February.

Nobody knows which way the market will move in the days ahead, but when it comes to the years ahead, history says, market panics from any era, do not last. Markets always eventually recover.

If you had panicked and sold out of the sharemarket in March 2009 (which we now know was the bottom of the GFC), you would have paid dearly. If you had taken $10,000 out and put it in cash, it would still be worth about $10,000. If you had left it in the share market, it would have climbed to a value nearer $100,000.

Bottom line, you will have less of your own money in retirement than you would have if you opt for early release. Your super is for your future retirement and was never meant to be spent for any pre-retirement crisis.

• That said, don’t forget this is not a government handout. It is your money. You earned it. You also need to consider how it will impact your retirement, taxes and what effect it will have on any other COVID-19 government benefits you’re receiving or may likely receive.

If you have a small super balance, there are other consequences to cashing out your super and you also need to consider your insurance. If ongoing fees and insurance premiums together with the $10,000 lump sum reduce your account balance to less than $6,000, your Life, TPD and Income Protection insurance cover may be cancelled.

Remember, the government is splashing the cash around to help anyone in financial hardship and stop the economy from flat-lining.

Many people have never received any government help but may now be in a position where they must take it…just to survive. Let’s face it though, you’ve paid taxes for many years and will pay much more in the years to come – so while things are tough, you may as well recuperate some of the taxes you have already paid.

If you are in a position where you think that you have no other choice but to cash in some of your super, please get in contact with us. We can ensure that you firstly exhaust every other potential income source (including any government assistance).

What’s on offer? See:

How to gain financial help during the Coronavirus

Financial Crisis Assitance for Low-income Earners

Finally, we want to acknowledge the difficulties everyone is facing as a result of COVID-19. We hope you can take confidence in knowing that AAG has been helping clients with their financial needs since 1979 and we continue to be here to support you.