Superannuation is designed to fund your retirement, but there are certain circumstances where you might be able to access it early. While this can seem like a lifeline in times of need, it’s crucial to understand the potential long-term consequences for your retirement income.

When can you access your super early?

Early access to super is generally restricted to specific situations, including:

• Compassionate grounds: To cover expenses related to a terminal medical condition, palliative care, or a life-threatening illness.
• Severe financial hardship: If you’ve been receiving government income support payments for 26 continuous weeks and are unable to meet reasonable and immediate family living expenses.
• Permanent incapacity: If you’re permanently unable to work due to a physical or mental condition.
• Temporary incapacity: In some cases, you may be able to access your super if you’re temporarily unable to work due to illness or injury.
• First home super saver scheme: This allows first home buyers to make voluntary contributions to their super and then withdraw them, along with associated earnings, to purchase a home.

What are the financial consequences of accessing your super early?

While accessing your super early can provide much-needed funds in the short term, it can significantly impact your retirement savings:

• Reduced retirement income: Every dollar you withdraw early is a dollar less you’ll have to live on in retirement. This can mean a lower standard of living or having to work longer than planned.
• Lost compound growth: The power of compound growth is essential for building wealth over time. When you withdraw your super early, you miss out on potential investment earnings, which can significantly impact your final balance.
• Tax implications: Early withdrawals may be taxed at your marginal tax rate, further reducing the amount you receive.
• Impact on government benefits: Accessing your super early can affect your eligibility for the Age Pension or other government benefits.

Example:

Let’s say you withdraw $20,000 from your super at age 45 due to financial hardship. Assuming a moderate investment return of 6% per year, that $20,000 could have grown to over $85,000 by the time you reach 65. That’s a significant amount of money to lose out on!

Should you access your super early?

• Accessing your super early should be a last resort. Before making a decision, carefully consider:
• Alternatives: Explore all other options, such as government assistance, budgeting, or seeking financial advice.
• Seek professional advice: A financial advisor can help you weigh the pros and cons and make an informed decision.

Protecting Your Future

While life can throw unexpected challenges our way, it’s important to protect your retirement savings as much as possible. By understanding the implications of early access and exploring all your options, you can make the best decisions for your long-term financial well-being.

This blog post is intended for general information purposes only and does not constitute financial advice. It is essential to seek personalised advice from a qualified financial advisor to ensure the information is appropriate to your individual circumstances.