Early release of Super with balance <$10,000


New laws allow anyone that has lost their job or meet hardship guidelines (i.e receiving Centrelink support) to withdraw their Super this financial year and next financial year. Each time they can withdraw up to $10,000, for a total of $20,000 maximum withdrawal. Click here for more information from the ATO. Click here to find or speak to a financial counsellor (free service funded by Governement).

I was asked by a friend if it is a good idea to withdraw their super after they heard that the global economy will struggle to recover from COVID-19.

Bad ideas:

Do not withdraw your super to maintain pre-COVID19 lifestyles. This is unsustainable and you will kick yourself upon retirement. So no luxurious cars, 4K TVs or gaming computers. No trips to the Bahamas or avo on toast from your favourite social-distancing no-contact drive through.

Do not use this money to pay back low interest debts such as mortgages or low interest rate car loans as the money could be earning more in the market than it saves in interest costs.

When it might be a good idea:

I would like to emphasise that withdrawing your super might have long term consequences that are difficult to grasp right now. Withdrawing large sums means that you lose the interest and capital gains that you might have earned over the next 10-40 years depending on your age. Withdrawing now also means that you are realising a loss in the Equity market (assuming that your super has a risk-weighting that includes Stocks).

It would be a good idea to withdraw super if you have a realistic business plan or investment opportunity that requires cash now. Doing so means that you are working harder to build your business up. Hopefully your business will be profitable and in doing so you’ll guarantee much larger returns than any stock market (index) can give over the long term.

It might also be worthwhile to use super to pay off any large interest bearing debts. For example debts incurred to pay unexpected medical bills with interest rates above 10%. Do not do this to pay off luxurious cars; you should sell such items instead of using retirement money to live frivolously now.

Another good option for withdrawing super is when you have a smaller super balance to avoid incurring excessive fees. Say you are a University student that works part time. You will probably have a small super balance that incurs a fixed minimum amount of fees. This means your fees will eat at your super balance. In these cases it might be worthwhile withdrawing your super to invest it yourself. Ensure that you do not spend the money before retirement and don’t gamble it away with CFD’s or Options. I would advise investing such cash into Index tracking ETFs for your retirement (after checking that their fees charged will be less than your super fund). Also note that doing this might lead to you losing insurance through your super.

Another potentially good idea would be to fund a good/service that allows you to find or create work. Think along the lines of a work-computer or a suit to attend an interview with when COVID-19 restrictions are lifted. This would only be advisable if you had no such items that still do the job just fine.

Drop a comment below on what you would or wouldn’t use your super for.

Remember resources such as beyond-blue and 000 is always available to help.

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