Australians accessing their superannuation early warned to think carefully how they spend the money

Cash-strapped Australians tapping into their retirement savings early need to be very careful on how they spend their hard-earned money.

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Struggling Australians are starting to receive large chunks of money from their superannuation funds but they are being warned to think carefully about how they splash their cash.

Since April 20, applications have been accepted by the Australian Taxation Office for those wanting to dip into their super savings early.

However, there are concerns many could waste the money once it hits their bank accounts.

Financial adviser Scott Haywood said early access to super should be a “last resort” and was merely a “bucket for survival”.

“It should only be used for essentials such as medicines, operations and keeping a roof over your head,” he said.

“You could pay down debt. Super funds normally deliver annual returns of 7 per cent so if you have a legacy debt, such as a credit card, it’s better to pay down that type of debt first.”

Hundreds of thousands of Australians are rushing to access their superannuation early to help cope during the COVID-19 outbreak.

Many credit card debts attract interest rates of around 20 per cent, but Mr Haywood said early access to super was really designed to help people stay afloat – not pay off debt.

“Use it sparingly because you can only access $20,000,” he said.

Australians can apply to access super early through myGov. Click on the ATO icon, go to the COVID-19 section and follow the application process.

Eligible applicants can access $10,000 this financial year and another $10,000 next financial year, tax-free.

Tribeca Financial chief executive officer Ryan Watson said it should only be used for “absolute essentials like rent, food, petrol and household bills”.

“If you don’t need the money leave it inside superannuation,” he said.

Tribeca Financial chief executive officer Ryan Watson said superannuation should only be accessed early for those who need to help pay for absolute essentials.

Mr Watson warned withdrawing super now could have a significant impact once you hit retirement.

“Money taken from superannuation now will impact your financial quality of life in retirement unless you want to work until you are 80 years of age,” he said.

Calculations by Industry Super Australia showed for a 30-year-old who withdrew $20,000 of super now it could leave them with $97,000 less in retirement savings once they stop work.

AustralianSuper’s group executive of membership, Rose Kerlin, said “before accessing super it is important to review any alternative financial support you may be able to access”.

“Superannuation is a long-term investment and accessing superannuation early comes at a cost,” she said.

First State Super’s chief executive officer, Deanne Stewart, said “super funds are here to help” and applicants should get their money from their super fund within five days of the ATO processing their application.

“I’m assuming the majority of people who are in real financial hardship are needing it to literally pay their day-to-day bills,” she said.

“If they are not facing financial hardship but still meet the criteria then they need to be considering where the money is best served.”

@sophieelsworth

Originally published as Australians accessing their superannuation early warned to think carefully how they spend the money