34 | SUPERANNUATION
Current issues impacting your superannuation By Glenn Harris – Bishop Collins.
ISSUE 1 IMPACTS OF TAKING YOUR SUPER EARLY Your superannuation takes a journey of many years. Not unlike the long journey of raising children, your superannuation savings will face many trials and tests during its journey and even further challenges once you reach retirement (hopefully by then the children have left the nest). The government’s announcement allowing Australians to participate in the “coronavirus early release of super” was met with an overwhelming response. Within 18 days 745,000 people had registered via MyGov to access their superannuation early. The government estimates 1.6 million people will access their super early withdrawing a staggering total of $27 billion from superannuation savings. The Australian superannuation
industry believes this number will in fact be closer to $65 billion. We would like to take this opportunity to urge caution when considering accessing your superannuation balance early. Depending on your age a withdrawal of $20,000 from your superannuation may have a devastating impact on your superannuation balance at retirement. Based on an annual net return of approximately 5% we estimate the reduction in superannuation balance at a retirement age of 67, by withdrawing $20,000, may look something like Figure 1. Investment returns may be further diminished from a smaller superannuation balance where you need to cover ongoing insurance premiums. By withdrawing the funds from superannuation you will have also missed out on the significant taxation
benefits of saving in the superannuation environment. Future legislative changes may also restrict your ability to ever be able to put the money back into superannuation. Rather than withdrawing $20,000 from your superannuation we suggest you consider alternative methods to manage your cash flow as part of the current crisis. This may include accessing your entitlement to government payments and discussing deferral of debt payments with your lenders. In addition to this we suggest you consider adding to your superannuation on a regular basis if your cash flow permits now or in the future. For as little as the price of a cup of coffee per day an increase in superannuation contributions can have a significant impact on your retirement savings. This is illustrated in the following case study.
FIGURE 1
Current Age Reduction in retirement balance Reduction in annual retirement income
INSIDER 114 AUGUST / SEPTEMBER 2020
20
30
40
50
60
$195,000
$120,000
$75,000
$45,000
$28,500
$9,900
$6,050
$3,800
$2,300
$1,400
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