Remember the early days of the COVID-19 pandemic? Uncertainty loomed, and the government offered a lifeline: early access to superannuation. While that $10,000 (or $20,000 if you accessed both tranches) may have provided much-needed relief at the time, it’s important to understand the hidden costs that could be impacting your retirement savings today.
The Silent Thief: Lost Compound Growth
The most significant impact of withdrawing your super early is the loss of compound growth. This is the snowball effect where your investments earn returns, and those returns then earn returns themselves, leading to exponential growth over time.
Let’s illustrate with an example:
Imagine you withdrew $20,000 from your super in 2020. Assuming a moderate annual return of 6%, that money could have grown to over $25,250 by 2024. If you leave that money untouched until a typical retirement age of 67, it could balloon to over $74,000! That’s a significant amount of potential growth you’ve missed out on.
Feeling the Pinch? How to Recover
It’s not all doom and gloom! Here are some strategies to help you recover from that COVID super withdrawal and get your retirement savings back on track:
- Boost your contributions: Increase your regular super contributions, even by a small amount. Every little bit helps!
- Consider salary sacrificing: If possible, salary sacrifice a portion of your pre-tax income into your super. This reduces your taxable income and allows you to contribute more to your super.
- Explore catch-up contributions: If you have a total super balance of less than $500,000, you may be able to make catch-up contributions using your unused concessional contribution caps from previous years.
- Make non-concessional contributions: If you have savings outside of super, consider making non-concessional contributions to top up your balance.
- Review your investment strategy: Ensure your super investments are aligned with your risk tolerance and retirement goals.
- Seek professional advice: A financial advisor can help you assess the impact of the withdrawal and develop a personalised plan to rebuild your retirement savings.
Don’t dwell on the past, focus on the future!
It’s easy to feel regret about past financial decisions, but the key is to focus on what you can do now. By taking proactive steps to rebuild your super, you can still achieve your retirement goals and enjoy the future you deserve.
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.
