INVESTING

The superannuation tragedy affecting half a million Aussies

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Almost half a million Aussies have jeopardised their retirement by withdrawing some or all of their superannuation via the early release scheme.

Industry Super Australia, using Australian Tax Office data on the proportions by age of those with accounts below $10,000, and Treasury statistics on the age distribution of early release, also estimates that young people have been particularly eager to reach into their super fund savings with 395,000 under-35s withdrawing money.

The near half-million Aussies who have dipped into their super represent about 15% of Australian workers.

super early withdrawal tragedy

Superannuation funds, like all investment funds, aren't like savings accounts. It's not as if taking out a dollar now and replacing that dollar back five years down the road will put you in the same position. You miss out on all the compounding that would've taken place over that timeframe.

"Those early contributions are like yeast, without them you're left with a much flatter nest egg," says Industry Super Australia CEO Bernie Dean.

"To have hundreds of thousands wiping their savings out mid-way through their life is a tragedy waiting to happen and it will affect everyone. Every Australian deserves a good life in retirement, not just scraping by on the pension."

For many the super withdrawal offer provided a lifeline for much needed cash during a period of hardship, and recovery is possible.

"If people genuinely needed it and have lost their job then they will need to wait until they have built up a savings buffer again before refocussing on repaying their super," says financial adviser Tanya Carlson.

Once you're on the financial straight and narrow, you can put in a plan to undo the damage from the withdrawal.

"What most people don't realise is that just $100 per month of salary sacrifice will repay that amount back over a 20-year period, with a little extra.

"The impact of $100 per month salary sacrificed is almost not noticeable for most people on their everyday cash flow - again personal circumstances will vary with this - but making it a priority will be key."

We're cutting through the confusion to help you manage your money during the coronavirus outbreak. Click here for more on how COVID-19 could affect your job, budget, super and investments.

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David Thornton is a journalist at Money magazine. He previously worked at Your Money, covering market news as producer of Trading Day Live. Before that, he covered business and finance news at The Constant Investor. David holds a Masters of International Relations from the University of Melbourne.
Comments
Barrie Page
January 23, 2021 10.29am

Unused gym membership is a mere pittance when compared with the amount of unused data surrendered back into the coffers of the telcos.

Issy Ledden
January 23, 2021 4.17pm

I've deposited my nest egg with Ioof through a financial advisor? I don't know why I need a financial advisor with a fee of 15.000 dollars to do that Would I be better to just put it into Australian Super Fund? Warm regards

Issy

Anita T
January 23, 2021 10.09pm

What a values-laden article! People have been trying not to die out here in Covid-land. Might I suggest that the journo dip into the Bridges Out of Poverty resources to understand what people have been experiencing, including those in the under-30s age-group who have been hard hit? So that when the experts accuse people of doing self-damage, the journos at Money Magazine can refute the use of blaming language and provide grace and accurate strategies.

Kenneth Jones
January 23, 2021 10.43pm

What a load of crap,my super has never compounded. Oats about 10 bucks a month interest and 10 bucks a month in fees. Your not going to grow rich with compounding

Warren R
January 27, 2021 1.25am

Hi Kenneth. Compounding interest is a gradual process. Visit an online compound interest calculator that provides a graph and check out the annual returns in the last few years of the term (say 40-45years) that's where the high returns occur. Of course annual returns and contributions will be a factor.

My returns seemed pretty underwhelming for many years. After 15 years my balance was substantially under $100k. That year I started salary sacrificing to boost my super account. 15-16 years later my balance is almost $500k. If average returns for the next decade are similar to the past decade (about 8.5%), and I contribute the same amount annually, my super balance will pass $1million (I'll be 60). If the average is lower, say 4%, then about $800k.

I'm with Australian Super. Low fees (compared with MLC whom I was with previously before rolling over). If you are not already with an industry super fund, I suggest you look into one. Retail funds charge more because they are (usually) owned by a bank and accordingly pay dividends to shareholders.

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