The Playbook For The Modern Man

What Australia’s $3.8 Billion Superannuation ‘Cash Out’ Will Do To The Economy, According To Money Experts

Stimulating… but at what cost?

Who hasn’t fantasised about spending the next two months in a Jacuzzi, sipping Prosecco, trawling Skyscanner (next year beckons) and ordering UberEats?

That just us?

Whether you’re currently turning into a shrivelled prune, or whether you’re stressing about your mortgage, Australians can now access up to $20,000 of their superannuation.

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Many are jumping at the chance. Treasurer Josh Frydenberg confirmed last Thursday, “The Australian Tax Office has approved 456,000 applications, totalling $3.8 billion.”

“Those applications are now with the superannuation funds for their payment over the next five days.”

One hell of a cash-out.

While it’s handy for those that need it, Fernando Prieto, CA at Solid Partners Accountants & Advisors told DMARGE with the amount of compound interest and special benefits you’ll be sacrificing, you should treat it as a last resort.

“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,” Fernando said.

“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.”

That was last week. This week we spoke to Fernando about what it means for the economy to have this chunk of super freed up. Will we see a sudden splurge on sneakers and watches?

How about an uptick on the ASX? Or a flattening of the ‘recession’ curve? Here’s what Fernando had to say.

“In the short term the idea of the withdrawal is to stimulate the economy. These aussies will have an extra $10,000 [or, if they do the double withdrawal, $20,000] to consume and spend, which will be good for the economy.”

However, “in the long term, it will mean that these individuals will have less in the superannuation come retirement, which is meant to fund their [Golden Years] spending.”

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“The impact on the withdrawal will depend on the individual’s age and rate of return. Ultimately, if these individuals don’t have enough funds to retire, or [if they] run out of money, we could assume the burden will rest on the government.”

“What kind of living standard that will afford these individuals in the future, is anyone’s guess.”

It’s not just those individuals who will be affected. As The Australian reported yesterday, Australia is facing a trillion-dollar debt by 2021 – something Shadow Treasurer Jim Chalmers says the nation will be paying off for years to come.

In terms of specific numbers, for individuals, Fernando breaks it down like this:

“If we assume an individual had 30 years left before they retired, and if we also assume their superannuation grew at an average rate of 8% per annum, then $10,000 compounded for 30 years would be worth $100,626.56 in 30 years time.”

“If another individual only had 1 year left to retire then that $10,000 would only have grown to $10,800 if it also grew at the same rate of 8%.”

“The impact is greater the number of years left to retirement and the higher the average rate of return over that same period,” Fernando added.

Shares will be hit too; Australian equities are predicted to ­account for almost 30 per cent of forced selling by superannuation funds facing liquidity shortfalls as more than a million Aussies pull from their super.

As Goldman Sachs equity strategist Mathew Ross told The Australian, “This liquidity position will be further worsened by the extent of member-switching towards more defensive products, and the fact that illiquid assets may be especially hard to liquidate in the current environment — meaning any future portfolio rebalance will need to come from selling liquid assets.”

On the flip side, Super Funds are now exploiting crisis-opportunities, with whatever money is left in their accounts, which has sparked “optimism” in individuals like chief investment officer of the $27bn TelstraSuper, Graeme Miller.

Until the dust settles (and, to be honest, beyond), we’d recommend you focus on saving what you can from your salary.

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  • Chris Pitman

    The elephant in the room is that the money will be income and taxable at a rate of about 30% so the tax take will be about 1Billion Dollars ..

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