Who hasn’t thought about retiring early and cruising around the Mediterranean – or maybe Croatia – with a yacht full of excess?
Maybe that’s just us.
Problem is, every now and then, a global financial crisis or WHO-recognised pandemic will inspire your stocks to fling themselves off the nearest precipice.
Such is capitalism.
On that note, to help people deal with these challenging times, the Australian government is now offering citizens the chance to withdraw $10,000 – early – from their superannuation fund.
For those looking to keep a roof over their heads and food in their belly, it’s great. But it also has a few hidden risks, which Fernando Prieto, CA at Solid Partners Accountants & Advisors, says may be obscured by another new piece of legislation.
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“The government changed the way accountants can and can’t talk to you about your superannuation. We can’t advise anymore whether it’s a good idea to put money in or take money out – you now need an Australian Financial Services Licence,” Fernando told us this morning.
“The hardest thing is we can tell you that it’s there and the things you need to do to get access to it, but we can’t tell you if it’s a good or bad idea to take money out.”
“They’ve introduced all these initiatives… but when people go to ask their accountant what to do… the accountants are going to say, ‘oh look, before I can even tell you any of this I’m going to have to charge you two or three thousand dollars to provide you with a statement of advice.”
“This is a really contentious issue at the moment.”
That’s to specific individuals. As for advice of a general nature (and all the disclaimers that come with it), Fernando told us, “all I can say is you can access $10,000 of your super before the 30th of June, and then another $10,000 after the 1st of July, and there’s an eligibility criteria – make sure you’re eligible first.”
As to the impact this will have on your super, the generic (and we stress generic) advice is not to pull it out unless you have no other choice, as you will then lose out on all the compound interest and special benefits superannuation funds are afforded.
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“If you’re going to take out money, the superfund has to sell some asset to fund you redeeming part of your superannuation balance. As the share market has tanked, if you do this you’re sort of crystallising your losses and depending on [how things recover] you could find yourself in a situation where that $10,000 would have recovered and compounded and been hundreds of thousands of dollars by the time you retired.”
“It’s really a function of how that $10,000 would have recovered.”
In other words: yes, taking out that money is going to have a significant long term effect: “when you retire it’s going to sustain you for a couple of years (or rather, would have).”
“I wouldn’t be taking it out unless you really have to.”
Fernando then told us he thinks it’s going to hit the more lower socio-economic demographic hardest of all: “it sucks because people should know what they’re getting themselves into – now you have to spend a few thousand dollars just to get a simple answer [from your accountant]” if you want advice tailored to your exact situation.
In the meantime, now’s as good a time as ever to brush up on those saving habits.