From 20 April 2020, the Federal Government will allow the temporary early release of super for those experiencing financial difficulty as a result of COVID-19. At Energy Super, we’re here to help our members with any decisions they need to make about their super including early access.
One of the common questions our members have been asking about early access is 'what impact will this have on future super savings?’
Withdrawing any sum from your super is naturally going to reduce your future super balance because you’ll lose out on the benefit of compound interest over the years to come. Depending on your age, this could end up being a significant loss to your future retirement savings. People with lower super balances will feel the effect even more because the withdrawal will be a larger proportion of their retirement savings.
To help you with your decision-making, please consider the following:
1. Use the Moneysmart Retirement Planner
The moneysmart.gov.au website has Moneysmart Retirement Planner that allows you to enter in your details, including breaks from work and/or reducing your super balance as a scenario. Use the interactive tool to get a guide to the impact withdrawing some super now will have on your future retirement balance.
When you do this, keep in mind that the amount you withdraw from your super will no longer be invested. This means you may miss out on any eventual recovery in the market.
Super Consumers Australia modelling found that, for a 30-year-old, the impact of withdrawing $20,000 would be $49,823 by retirement age. Choice.com.au calculated the value of the withdrawal in today's dollars for different age groups as seen in the table below.*
Impact on balance at retirement of $20,000 withdrawn from your super:
*Modelling taken in April 2020 from choice.com.au
2. Consider other options
Some individuals who experience a loss or reduction of income due to COVID-19 may still be able to maintain a basic standard of living, by using existing savings and government support. A good place to start is with the family budget. Work out how your expenses have changed, or could be further reduced over the coming months, and include any income or government assistance you are eligible for.
You might then want to consider the other ways you can reduce expenses over the coming months, including:
- Banks — most banks are offering up to a six month ‘pause’ on their home loans, and pauses on other debts (like credit cards).
- Utility providers and telecommunication companies — most companies can offer payment plans.
- Landlords — the government has announced they will be unable to evict renters due to financial difficulty during the Coronavirus situation.
- Defer other non-essential expenditure.
3. Government Financial Assistance
See our COVID-19 Financial Assistance page for more information about other financial options and available government support as part of the Government’s COVID-19 economic stimulus measures.