What to consider when withdrawing your super early

As the COVID-19 virus took a sledgehammer to the economy, the federal government rapidly introduced a range of initiatives to help individuals who lost income as a result of the measures taken to control the virus.

One of those initiatives was to allow qualifying individuals access to a portion of their superannuation to help them meet their living costs. Withdrawals are tax free and don’t need to be included in tax returns. Most people can withdraw up to $10,000 in the 2019/2020 financial year and up to a further $10,000 in the 2020/2021 financial year.

For many people this early access to super will prove to be a financial lifesaver, but for others the short-term gain may lead to a significant dip in wealth at retirement. And the younger you are, the greater that impact on retirement is likely to be.

Alexander provides an example that many people will be able to relate to. He’s a 30-year-old hospitality worker, and due to the casual nature of his recent employment he is not eligible for the JobKeeper allowance. He is eligible to apply for early release of his super under the COVID-19 provisions, however before going down this route he wants an idea of what the withdrawal will mean to his long term situation.

Taking the max
Much depends, of course, on the future performance of his superannuation fund. However, if Alexander withdraws $20,000 over the two financial years, and if his super fund delivers a modest 3% per annum net return (after fees, tax and inflation), then by age pension age (currently 67), Alexander will have $39,700 less in retirement savings than if he doesn’t make the withdrawal.

At a 4% net return, he will be $65,360 worse off if he makes the super withdrawal.

But that’s not the only disadvantage for Alexander. A smaller lump sum at retirement means a lower annual income. If Alexander draws down his super over a 20 year period, at a 3% net return, he will be around $2,670 worse off each year as a result of making the withdrawal. Over 20 years that adds up to a total loss of $53,375. At a 4% return, his youthful withdrawal will cost him over $96,000 by the time he reaches 87.

Reducing the risk
On the plus side, if Alexander is eligible for a part age pension when he retires, his smaller superannuation balance may see him receive a bigger age pension.

There are other things Alexander can do to reduce the financial consequences of accessing his super early. One is to only make the withdrawal if he absolutely has to. Or if he does make the withdrawal, to use the bare minimum and, when his employment situation improves, to contribute the remaining amount back to his super fund as a non-concessional contribution.

COVID-19 is adding further complexity to our financial lives, so before making decisions that may have a long-term impact, speak to us.


The information provided in this article is general in nature only and does not constitute personal financial advice.

Robert Goudie

Financial Adviser - Consortium Private Wealth

Thanks for dropping by my bio!

A bit about me: My passion is to work with Self-Managed Super Fund Trustee’s and other Motivated Investors who love having control and input as to how their money is invested for their future.

For the past 20 years I’ve been working as a financial advisor helping superannuation investors, small business owners (including farmers) and direct share enthusiasts on how to take back control of their financial situation from the banks and the large institutions.

BTW... In case you're wondering, no. There are no “get rich quick” schemes here, the advice I give is based on commonsense that my clients understand that get results. No fluff, no hype. My weapon of choice... is always commonsense, if you don’t get it we don’t move ahead until you do. AND investing directly, avoiding bank products reduces fees, saves tax and gives you control.

If you want to find out more about what I do, you can contact me on email rob@consortiumpw.com.au or 03 5382 3460.



Consortium Private Wealth