Accessing $10k of super is worth $60k in future

24 April 2020

Accessing $10,000 of superannuation early now could mean a loss of $60,000 in 40 years, according to an accounting practice. 

BDO’s superannuation partner, Mark Wilkinson, warned against Australians using the Government’s scheme to access their super early due to financial hardship caused by the COVID-19 pandemic.  

Wilkinson said while $10,000 did not sound like a lot, it would be worth $60,000 in 40 years for a 25-year-old today, and worth $38,000 for a 35-year-old. 

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“Whilst accessing your super right now might provide some relief if you’re facing significant financial pain, there should be a big, red ‘proceed with caution’ sign warning that your future-self will pay the price for this move,” he said. 

“There have been similar arguments in recent years for accessing super as a way of helping first home buyers get into the market. But the numbers just don’t add up.” 

Wilkinson said people needed to weigh up the long-term effects on their retirement savings if they were looking to access their super early. 

“If you qualify and you do decide to withdraw funds from your super you need to be mindful that it’s not so easy to replace your retirement savings and you’ll be playing catch-up for a few years to come,” he said. 

“Whilst the early access incentive may appear enticing, people should act with caution before implementing this measure and be aware of the longer-term implications.” 

On Thursday, the Australian Taxation Office (ATO) confirmed over 456,000 Australians had been approved access to their super, totalling $3.8 billion. 

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It could also be worth a hell of a lot more in boosted retirement savings depending on what people do with it. I’ve heard stories of couples that have had a loss of income planning to pull out $40k and buy a house that they’d otherwise struggle to save the deposit for. If they pay that house off in 20 years then direct their Cashflow otherwise earmarked for rent towards retirement they’ll be far better off financially than having $10k sitting in an illiquid industry fund getting eroded by insurance premiums.

Others are paying off credit card debt that has been strangling them for years, freeing them up once their income returns to somewhat normal levels, which is a great use.

Of course some will buy 80 cartons of beer and 10 cases of cigarettes but hey, think of the tax revenue there!

Taking money out of super (especially from funds loaded up with unlisted assets that haven't been properly valued.... yet) is a smart move for those worried about their future. If they get by without needing the money, they can put it back in and claim a tax deduction. Happy days.

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