The entire world has been affected by the global pandemic, COVID-19. Businesses have closed and many people have lost their jobs. In Australia, almost one million people have found themselves out of work as a direct result of the virus. These people face expenses including mortgages, rent, groceries, and bills to pay. Yet now with little or no income to rely on, times are harder than ever.
While the Government released both the Job Keeper and JobSeeker payments to help out, they also gave Australians early access to their Super to keep them afloat. While this seems like a great initiative, there are of course risks involved that need to be weighed up. So what is the risk of withdrawing Super early?
Accessing Your Super Early
Those who have been affected financially by the COVID-19 pandemic can now access their Super early. Eligible Australian citizens are able to access $10,000 for the 2020-21 financial year. To be eligible, you must be:
- Eligible for JobSeeker Payment, Youth Allowance, Parenting Payment, Special Benefit, Farm Household Allowance.
Plus, on or after January 1 2020, either:
- Made redundant.
- Had your working hours reduced by 20% or more.
- Were a sole trader and your business was suspended or there was a decrease in turnover of 20% or more.
Already, about 2.3 million Australians have gone down this route. This is in an effort to get the financial help they need during the pandemic. So what is the risk of withdrawing Super early?
Risk Of Withdrawing Super Early
This may seem like a great idea in theory. However, there is plenty of risk that comes with withdrawing Super early. Here are just some factors to consider before making a decision about whether it is worth it to you:
The dollar amount:
$10,000 may not seem much to you right now. Especially considering how much it can help you out in your current predicament. However, when it comes to the risk of withdrawing Super early, you need to look into the future. While it may be $10,000 now, what will it look like down the track?
According to Industry Super Australia (ISA) Chief Executive Bernie Dean, a 20-year-old who accesses the full $20,000 available under the scheme (which applied to the financial year that has just ended as well) could lose more than $120,000 from their retirement. For a 40-year-old this works out at $63,000 by retirement. This is a significant cost to factor in when making a decision. That $10,000 has the potential to grow to a much larger amount by retirement.
About two-thirds of Australians hold their life insurance through their Superannuation fund. Taking out $10,000 means those who are new to the workforce could be left with nothing in their account. This could mean they are no longer covered by insurance. For others, the amount that can be claimed drops with this withdrawal.
Your Superannuation is there for a reason. It is to ensure that you can comfortably retire in the future. Many people accessing their Super early are actually using it on things that don’t need, which is an inherent risk of withdrawing Super early. Recent figures have shown that Australians who have accessed their Super spent nearly $3000 more than normal in the fortnight after receiving it, with about two-thirds of the additional purchases on non-essentials.
Knowing the risk of withdrawing Super early, what are the options?
Look At Your Entitlements
The first step is to look at what you are entitled to. As mentioned above, the Australian Government has stepped up during the pandemic to help those who have lost jobs and businesses, with a number of payments, including JobKeeper and JobSeeker. Do your research and see what you can apply for to help you out, before resorting to other measures. It may be enough to keep you on track.
Consider Debt Help
While no-one wants to have to take out a loan to cover their debt, it can be a much better option than accessing your Super early. A loan will not only give you the boost you need to get back on track but knowing you have to repay it in the near future will help prevent any of the unnecessary spending that occurs as a result. Instead, if you pay back your loan on time and meet your repayments, it will actually have a positive effect on your credit score and help you get any additional loans, such as a mortgage, down the track.
Get Debt Help Today
If you are wondering what the right option is for you, then speak to the experts at the Australian Lending Centre today. We offer the best advice for your personal situation and help you get access to the help you need in a way that is right for you.