Our employers and we make regular contributions to our super, during our active life in order to enjoy financial stability in our elderly years.
We are eligible to have accessed our funds at a certain age (“the preservation age”).
For our guidance, ASFA (The Association of Superannuation Funds of Australia) publishes quarterly the amount of money needed in our super in order to lead a “comfortable”, “modest” or “basic” lifestyle in our post-work years.
Currently (mid-2021) the “comfortable” scenario sits at AUD 545,000, for a single person and AUD 640,000 for a couple.
These sums will ensure annual pensions of AUD 44,224 per year for a single person, or AUD 62,562 for a couple.
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So How Do We Get There?
The above benchmark sums need not be contributed entirely. Superannuation funds are not simple deposit accounts. The accumulated funds are invested and bring investment returns.
The returns are then invested again and bring yet more returns – compounding returns.
It is important that we understand how the system works and the ways in which we may maximize our super funds.
We may choose any retail super fund or we can even have an SMSF – a Self-Managed Super Fund.
Finance Advice
Sound Complicated?
For starters, it could be. However, we need not be alone in managing our super.
An array of superannuation consultants, wealth management companies, wealth management planners, retirement planning firms exist to support us in the process.
We just need to find the right one and tap into their knowledge.
It is reasonable to use locally based specialised financial planners for optimizing the performance of our super. Local tax and legislation may be key to optimizing our super management.
Say if we reside and work in Brisbane North then the wealth management company or retirement planning firm is best to be located in Brisbane North.
In this way, we access all local opportunities for maximizing the performance of our super.
We need financial consultants also to advise us on current legal developments in respect of our super management.
For example, recently the Government eased the restrictions on limited early access to our super funds, due to the COVID-19 pandemic.
Early access is now allowed for sums up to AUD 20,000 under certain conditions.
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Accessing Our Super
The super funds are intended to be accessed around the time of our retirement – upon reaching our preservation age. However, there are instances when we may require premature access to our super.
Now, this is even easier for amounts up to 20.000, as mentioned above. Again it is best to use specialized consultants who can help us best decide what is best for us.
Tapping our super savings carries with it some advantages and some disadvantages, which we need to be aware of:
Advantages
We Have Readily Available Financial Support, Just When We Need It
We lost our job or suffered an income cut – access to our super can provide a quick fix.
The eased access for limited withdrawal from our super fund currently intends to relieve some of the financial burdens which we may be experiencing due to unemployment or reduced income during the COVID-19 pandemic.
AUD 20,000 could be actually life-saving for us.
The Money We Withdraw Will Not Be Taxed
The super funds enjoy a lower taxation regime, compared to other savings outside the super. Any withdrawals from your super, be it early or regular, will not be taxed additionally.
This makes super withdrawal amounts tax-effective inputs to your budget.
Disadvantages
Something Has Gone Wrong
The conditions, which would allow us to access our super prematurely are not standardly associated with positive developments.
We may access our super for instances such as permanently leaving Australia, unemployment, evading foreclosure, medical expenses, palliative care, funeral expenses, and the like.
Hence, it is best, if we do not need early access to our super. This would suggest that all is well with our place of residence, our health, and our income.
When We Withdraw Funds From Our Super, the Availability of Money at Retirement Will Suffer
At the beginning of this article, we mentioned the sums calculated by ASFA for reasonable wellbeing during our retirement years.
Saving up these large sums requires long years of contribution. Should we access our super early, we are actually decreasing our super.
Hence the chances of reaching the “comfortable” zone of retirement income will suffer.
Loss of Investment Returns
When we withdraw money from our super, it will no longer bring us investment returns.
This means that not only the amount withdrawn will not be available to us upon retirement, but also all of the investment returns, which it would have brought over the long term.
This loss is greater the younger we are, as the investment period will be longer. To illustrate this let’s take an example from AustralianSuper, which is the largest super fund in Australia.
According to them the balanced annualized returns over the last 10 years stands at 8.77% on the funds they manage.
This would mean that for a 30-year-old person with AUD 20,000 in his super today, the amount will grow, in the next 35 years (the years until retirement), to top AUD 300,000.
Yet again, the “high growth” option, which reaches 9.42% annualized 10 yar returns will grow this amount to top AUD 500,000!
Though it is true that for elderly people, early access to the super funds will bring less financial loss (due to a shorter investment horizon), the financial damage from investment returns is still present.
Early access to our super may seem like the easiest way out of a personal financial crisis.
Yet knowing the advantages and disadvantages of early access to our super, it seems clear that we have to leave this as the option of last resort.
Tapping into our future, though providing a temporary remedy, is generally not a reasonable solution.
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