Real cost of accessing superannuation early
The race for cash-strapped Australians to withdraw $20,000 in superannuation could leave a gaping hole in their retirement savings that is more than double the amount taken out.
Already more than 2.5 million people have withdrawn $28.5 billion from super accounts since the federal government scheme started in April and this is expected to significantly climb in the coming months.
Latest figures from the Australian Securities and Investments Commission's MoneySmart calculator found based on an annual income of $50,000, with inflation factored in and investment returns of 7.5 per cent, withdrawing $20,000 now would end up costing in today's dollars:
• A 25-year-old $47,400 come the retirement age of 67;
• A 35-year old $38,800;
• A 45-year-old $31,600;
• A 55-year-old $25,700.
Artist Lisa Cahill, 45, is among the millions of Australians who has already withdrawn $10,000 from her super account and is considering taking out another $10,000 this financial year.
The mother-of-one has suffered a 95 per cent hit to her income since March and after finding it difficult to get repayments holidays on two mortgages she said she was left with no other option but to withdraw $10,000 from her super.
"As an artist my business income always fluctuates but the uncertainty of how long the downturn would last made me anxious," said Ms Cahill.
"I couldn't get through to any of the banks so I withdrew my super. I understand it's going to affect me long term so what was I supposed to do."
Here's three important things to consider when accessing super early.
The Australian Taxation Office's assistant commissioner Sonia Corsini said anyone applying for $10,000 this financial year has until September 24 to do so.
"It's really important you meet the criteria and only apply if you meet it," she said.
"If you're not sure ask your tax professional or financial adviser for advice about eligibility and whether accessing your super is the right decision for you."
The criteria includes being made redundant or suffering a significant hit to your income this year. Australians citizens and permanent residents of Australia or New Zealand can apply to access up to $10,000 from their super until September 24.
Temporary residents cannot apply in this second tranche.
2) BE PATIENT
Since the second tranche opened up the Australian Taxation Office has been inundated with applications. Ms Corsini urged people to take care when lodging an application and be patient.
"It's a busy time but we are working as hard as we can to process applications quickly and we know the funds are processing payments as quickly as they can," she said.
The entire process from start to finish can take up to nine business days. This includes four days for the ATO to process the application and then up to five for the fund to review the application before giving the green light.
3) SPEND IT WISELY
Financial comparison website Mozo's spokesman Tom Godfrey urged those who do dip into their super to be careful how they spend their money.
"If you've taken money out of your super, it's important to use it wisely," he said. "Consider putting the money in a savings account so it's earning some interest and you can still access it to cover unavoidable household expenses such as electricity, gas, internet and food."
Mr Godfrey also said recipients should consider paying down long-term debt.
• Visit the myGov website and click on the ATO portal.
• Click on the early release of superannuation apply tab.
• Only apply once.
• You do not need to attach evidence but keep relevant documents handy.
Originally published as Real cost of accessing superannuation early