To stimulate the economy during these strange times the Australian government is allowing people to raid their superannuation accounts.
They'll let eligible people take out $10,000 this financial year (before 30 June) and a second $10,000 after 1 July.
This morning the Australian sharemarket was at 4,564. Back on 20 Feb it was 7255. That's a drop of 37.1%.
Basically, shares are going cheap. So if you own shares (and you do, through your superannuation) this is a terrible time to cash them in because you'll get a rather low amount of cash for them.
If you've got $20k in super, a month ago that was worth $31,800. In the future it will be worth $31,800 again - and more. But if you cash it in now, you don't get that extra $11,800 - it's gone.
That's like paying a 37% tax on any money you take out through this scheme. Ouch!
It's amazing how much money grows over a long time-span. Australian superannuation averages 8.3% per year.
Leaving the $20k in your superannuation has massive payoffs down the track. How massive? That depends on your age now. At 8.3% here's how much better off would you be when you're 70 (if you leave the 20k in now).
That's a lot of money to give up for $20k now.
People on government payments are getting temporary increases and special one-off payments. State governments are looking at assistance for renters, banks are already offering homeowners a pause in your repayments.
Can you borrow money from your parents? Is there a charity near you that provides cheap or free food? Do you have unwanted items that you could sell online? The average household has thousands of dollars worth. Here's my free guide for selling your stuff online.
Once things are back to normal it's probably a good idea to save some extra money into your super to make up for the loss. You'll still take a hit from the "desperation tax" I described earlier, but hopefully you can still make great use of the high growth of superannuation to set you up for your elderly years.
They'll let eligible people take out $10,000 this financial year (before 30 June) and a second $10,000 after 1 July.
Why "early super access" is a bad idea
While there may be an incredibly small number of people who could benefit from this, for the vast majority it seems to me to be a terrible idea. Here's why...1. You'll pay a 37% "desperation tax"
Superannuation money is invested in the sharemarket (among other things). For some it's 100% in the shares, for others it's a bit less.This morning the Australian sharemarket was at 4,564. Back on 20 Feb it was 7255. That's a drop of 37.1%.
Basically, shares are going cheap. So if you own shares (and you do, through your superannuation) this is a terrible time to cash them in because you'll get a rather low amount of cash for them.
If you've got $20k in super, a month ago that was worth $31,800. In the future it will be worth $31,800 again - and more. But if you cash it in now, you don't get that extra $11,800 - it's gone.
That's like paying a 37% tax on any money you take out through this scheme. Ouch!
2. You'll be hurting a 70-year-old (you).
There's a reason we have our money in superannuation. It's a great investment which sets us up for our elderly years.It's amazing how much money grows over a long time-span. Australian superannuation averages 8.3% per year.
Leaving the $20k in your superannuation has massive payoffs down the track. How massive? That depends on your age now. At 8.3% here's how much better off would you be when you're 70 (if you leave the 20k in now).
That's a lot of money to give up for $20k now.
What else can I do?
There's a variety of people reading this. Some may be in extreme trouble while others might just be looking to add a quick $20k to their bank account. What I'm saying is to explore other options first.People on government payments are getting temporary increases and special one-off payments. State governments are looking at assistance for renters, banks are already offering homeowners a pause in your repayments.
Can you borrow money from your parents? Is there a charity near you that provides cheap or free food? Do you have unwanted items that you could sell online? The average household has thousands of dollars worth. Here's my free guide for selling your stuff online.
What if I absolutely have to?
As I said at the beginning, there's a few people whose individual situation means this is a necessary step. Fair enough.Once things are back to normal it's probably a good idea to save some extra money into your super to make up for the loss. You'll still take a hit from the "desperation tax" I described earlier, but hopefully you can still make great use of the high growth of superannuation to set you up for your elderly years.
Comments
Post a Comment