Aussies dipping into their super could miss out on more than $200,000

A huge number of Australians have applied to withdraw money from their retirement funds, raising fears it could impact on everyone’s nest egg.

Investment experts have warned Australians of the significant cost of dipping into their super after it was revealed more than 600,000 had already registered to draw down up to $20,000.

The Federal Government made retirement funds available to those who have had their income plunged into doubt as a result of the coronavirus-induced shutdown and ensuing economic crisis.

Under the scheme, those impacted by the outbreak can grab $10,000 from their super this financial year and another $10,000

after July 1 until September 24, 2020. Almost 618,000 fund members have registered to cash out so far, according to the Australian Taxation Office.

A 25-year-old who withdraws $20,000 over the next two years stands to miss out on more than $200,000 by the time they’re 65 based on a standard compound interest rate of 6 per cent, Burman chief investment officer Julia Lee says.

“Don't make long-term decisions based on short-term factors,” she told news.com.au.

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“The whole idea of superannuation is the beauty of compounding over time, which means you have time working in your favour for a long-term investment.

“That whole premise disappears if you're selling at the lows of the market, near the lows of the market, or anytime there's a market panic.”

Ms Lee said a huge portion of the population was desperate for income relief given the pandemic’s destructive influence on industries and employment.

But she strongly advised those struggling to make ends meet to exhaust other channels such as the government’s massive $130 billion JobKeeper package or its Jobseeker initiative.

The Aussie stock exchange has plunged more than 20 per cent since the deadly virus took hold of supply chains and trading conditions.

Meaning those drawing down on their super are cashing out while the market is low, defying one of the first rules of investing.

The huge dent in super funds will also weigh on all Aussies by devaluing the investment institutions and there are now fears the number of Australians chipping into their retirement could be much greater than the government initially anticipated.

“The sheer number of redemptions coming through from super funds presents a challenge,” Ms Lee said. “If they don't have enough cash it means they'll have to sell assets.

“The impact on the share market depends on what assets they sell but generally sellers drive down the price, so when you have these large institutions like super funds selling on mass then it will drive down the value of the markets.”

The snap back in stocks is expected to come later than initially thought, but DNR Capital chief investment officer Jamie Nicol says withdrawing from the market will significantly reduce the prospect of cashing in on any rise in value.

“Selling off your super in a subdued market means many will lock in the falls and miss the recovery,” he told news.com.au.

“In the long run they will have less savings and more reliance on government pensions.

“It also has potential consequences for all super holders given some superannuation funds which have a lot of members cashing up will be forced to sell assets at potentially fire sale prices.”

HOW THE JOBKEEPER PACKAGE WORKS

The money won’t be paid to eligible workers directly – instead, employers will pay their staff and be reimbursed by the government.

The first payments by the ATO will be received by employers in the first week of May, but it will be backdated to when the scheme was first announced in late March, which means people will initially receive a lump sum of one month’s worth of payment.

Under the scheme, workers who have their hours cut will be able to request time to work a second job.

Companies will be able to cut employees’ hours so their income matches the $1500 per fortnight JobKeeper payment, as long as there is not enough work available for them in their normal role.

AM I ELIGIBLE?

There are a number of boxes to tick before being eligible to receive the payments.

You must be employed currently or had been on March 1 this year, including those who were let go since and rehired.

The eligibility extends from full-time workers to part-time and casuals but you must have been employed for at least 12 months. And the payments are only available to Australian citizens or holders of select work visas.

You can only get the JobKeeper payments from one employer and you can’t receive the Jobseeker payments on top of this.

However, if you have already put in an application for a Jobseeker allowance, don’t stress. The Australian Taxation Office will consider both applications and work out which category you fall under.