Pros and Cons of Accessing Superannuation

14 January 2021

In our current COVID-19 pandemic environment, there are many situations that are unprecedented. One of these is the Australian Government's relaxation of the rules relating to accessing superannuation.

Throughout the pandemic period, laid-off workers or those not working are able to access $10,000 of their superannuation funds per financial year, to the value of $20,000, to help them through this tough time.

It sounds like a great idea, but what are the considerations that you should be aware of before you dip into your retirement savings? Let's discuss the pros and cons.

The pros

These might seem blindingly obvious, as having access to your compulsory savings can really help out when money is tight and work is scarce. Accessing this money can help make ends meet and cover the day-to-day bills that keep rolling in, regardless of your work situation.

From an economic point of view, it's also good for the economy when people are spending, i.e. economic stimulus. And, from the Government's point of view, why not let people access their own money to spend and drive the economy? It's cheaper now and places less strain on the tax system and deficit in the future!

The cons

The magic of superannuation is that of compounding interest. This is growing your money quickly by getting interest on interest. This is a great system, until you take money out. Lowering your superannuation by even a relatively small amount now can mean the loss of a significant amount in the future. The younger you are when you withdraw money, the larger the impact will be when you retire, with studies showing that impact of a 25-year-old withdrawing $20,000 from their super will mean a difference of over $102,000 when they retire. That is a very scary figure!

The conclusion

If you really need it, accessing your superannuation can be a good tide-over until your financial or working situation improves. But be very aware of the long-term impacts of this on your balance at retirement. The long-term impacts may outweigh the short-term benefits.