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How early super withdrawals add up

The coronavirus pandemic is having profound effects on Australian families, communities, businesses, the financial markets and the global economy.

APRA update - 4th May 2020

APRA has revealed key data on the early super release scheme and vowed to take action on funds that don’t toe the line.

Super trustees have received 665,310 applications for early release, with 162, 879 of those processed and paid out for a total of $1.3 billion. The average benefit paid was $8002.

Over 100 funds have paid out early super, with payments taking an average of 1.6 days to complete. The data is taken from the first week of the program.

“Although this publication only covers the first week of a scheme that will run for several months, the initial data indicates trustees are moving quickly to make payments after receiving determinations from the ATO,” said APRA Deputy Chair Helen Rowell.

“APRA is closely monitoring trustee performance in this area and will consider taking appropriate action if evidence emerges of funds not releasing benefits to eligible members as soon as practicable.”

As of last week, there had been 527,000 claims totalling $4.4 billion.


Original article.

       
Many people have lost their jobs and there is much uncertainty around the depth and duration of the current crisis. Governments and policymakers across the globe have announced unprecedented fiscal and monetary packages to provide some offset to the downturn.
 
The Australian Federal Parliament has approved the JobKeeper payments ($1500 per fortnight), boosted JobSeeker payments up to $1100 per fortnight, and allowed the unemployed and people whose hours have been cut by 20 per cent to dip into their retirement savings to help them weather the coronavirus crisis.
 
People will be able to apply online through the myGov web site to access up to $10,000 of their super, tax free, before 1 July 2020, and then another $10,000 after the new financial year begins, also tax free.
 
While some will have to access these funds to make ends meet, others may have a choice. Should they or should they not use the early access to superannuation?
 
How early withdrawals add up
 
Withdrawing superannuation funds now means an investor selling part of their portfolio in a depressed market, crystallising current losses and giving up the benefits of eventual recovery in investment markets. It will also erode the investor's retirement wealth by forgoing future compound interest.
 
Consider the impact that an early withdrawal could have on an investor's superannuation balance. The calculations below are for a balanced multi-asset managed fund containing a mix of equities and fixed income, with an average net return of 6 per cent per annum.
 
For an investor who has 20 years until retirement, the value of a $10,000 withdrawal is estimated to be worth $32,100 at retirement. Over the course of 40 years, the impact of the $10,000 withdrawal on the retirement savings climbs to $102,900, while a $20,000 withdrawal means an investor would have $205,700 less at their disposal. For this investor who chose to withdraw funds right now, it could mean delaying retirement for a number of years.
 
Comparing potential withdrawal impacts at different ages
 
Investor's current age Years to retirement Value of $10,000 at retirement Value of $20,000 at retirement
67 0 $10,000 $20,000
57 10 $17,908 $35,817
47 20 $32,071 $64,143
37 30 $57,435 $114,870
27 40 $102,857 $205,714
 
Source: Vanguard calculations
Notes: This is a hypothetical scenario for illustrative purposes only. All values are nominal.
 
A disciplined approach
 
Global evidence supports the importance of disciplined saving for retirement outcomes.
 
In 2018, the World Economic Forum named low levels of savings by individuals amongst the six key challenges facing the retirement system worldwide. Many people delay retirement savings until they are in their 40s or 50s. This is not unusual as at each life stage, more immediate financial priorities come first – for instance, saving a deposit to buy a home, paying down a mortgage or investing in kids' education. In addition, more often than not, savings intended for retirement do not last until retirement; sometimes they are drawn for medical emergencies or critical housing repairs, or during periods of unemployment.
 
As Australians live longer and spend more time in retirement, we require higher levels of savings to sustain our longer lifetimes and adequate lifestyles. The World Economic Forum estimates that combining auto-enrolment to superannuation, increasing savings over time and avoiding dipping into the superannuation savings prior to retirement is expected to increase wealth at retirement by 70 per cent.
 
Many people are currently doing it tough and will need to rely on the early access to superannuation as they do not have other means to support their families. For investors who have a choice, taking a long term perspective may prove to be beneficial. We recommend investors seek financial advice and explore other ways of obtaining financial assistance first.
 
Stay the course
 
Vanguard founder Jack Bogle famously said: "The courage to press on – regardless of whether we face calm seas or rough seas, and especially when the market storms howl around us – is the quintessential attribute of the successful investor."
 
Historically bull markets last substantially longer than bear markets, and this downturn will eventually be over.
 
The best thing investors can do is to stick to their investment principles and philosophy, and "stay the course" to have the best chance for investment success.
 
 

Inna Zorina
Senior Investment Strategist 
Investment Strategy Group
15 April 2020
vanguardinvestments.com.au
 

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David Forrest Download David's Adviser Profile

David Forrest

Director
BEc (Acc), MBA, CPA, FFin

David has been in the Financial Services Industry for nearly 30 years. He was one of the founding Directors of the successful Financial Planning and Stockbroking Practice, Henderson Gregory Forrest, for a decade. Prior to that, he held senior roles in companies such as ING, KPMG Accountants and AMP. David was previously Chairman of OAMPS Superannuation Trustee Board and currently serves as an independent Board Director for several companies.

David’s extensive experience in all forms of superannuation, including Self Managed Super Funds (SMSF), Defined Benefit Funds, retirement funding through Account Based Pensions, stockbroking with a focus on Direct Share Investment, Taxation/Remuneration Planning, Centrelink, Aged Care and business management, equip him to advise expertly on all aspects of Financial Advice.

Those with a particular interest in superannuation/SMSFs, direct share investment, salary packaging or applying for the Centrelink Pension will find his knowledge and ability in formulating and implementing creative, logical and simple wealth creation strategies a valuable asset.

David maintains a strong personalised client service focus, providing tailored solutions for clients.

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David Forrest is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Michelle Forrest

Michelle Forrest

Business Finance Manager
B Bus (Acc), CPA

Michelle’s career has spanned across the Financial Services, Retirement Living and Aged Care industries working in the private sector, not for profit and more recently with the state government for over 20 years. Her experience extends to many facets of the financial services industry, having worked in superannuation administration, technical support and financial planning practice administration.

Commencing with AMP and subsequently working in commerce and accounting roles with companies such as Brambles, Adelaide Bank Retirement Services, ECH Inc and SA Health and Wellbeing, Michelle returns to financial services after working in practice financial management at Henderson Gregory Forrest. This wide range of experience from senior accounting and management roles has provided Michelle with a strong background in business administration.

With an astute financial acumen and keen interest in business improvement strategies, Michelle ensures the smooth running of the Integrity Financial Advisory practice providing valued management support to our personalised client service focus.

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Darren Chalk Download Darren's Adviser Profile

Darren Chalk

Financial Adviser
B Com, Dip FP

Darren joins the Integrity team as a strong technical specialist with almost 20 years’ in the Financial Services industry. He has extensive experience advising clients on how to build and protect wealth, prepare for retirement and retire comfortably.

Commencing with advising clients on direct equities for over 10 years at Baker Young, Tolhurst Noall, and ABN AMRO Morgans, his career expanded to providing holistic client advice, having operated his own financial services licence and company. Most recently having worked for a 'Big 4' bank, he has welcomed the more personalised ‘client first’ approach that is evident at Integrity Financial Advisory.

With a deep understanding of investment markets, he is appropriately qualified and authorised to provide direct share advice, as well as superannuation/SMSF advice, encompassing both investments and insurance.

Meticulous in his approach, he aims to deliver quality outcomes for clients by understanding their financial situation and needs before providing advice which is central to our advice process. Darren supports David in tailoring solutions for all client financial advice needs.

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Darren Chalk is an Authorised Representative of Integrity Financial (SA) Pty Ltd ABN 16 133 921 187 — AFSL No 334846

Natasha Bartlett

Natasha Bartlett

Client Service Manager

Natasha commenced working in the financial services industry in June 2008 and is a new addition to the Integrity team. During the past 11 years, she worked closely with advisers providing administration support in a share broking and financial advice business.

Having successfully completed her RG146 accreditation in securities and managed investments and continued her studies to complete her competency in Superannuation, Natasha can ably assist with all aspects of fixed interest, cash management, portfolio administration, direct shares and client advice implementation.

Natasha takes time to ensure she understands our client’s financial goals and needs and believes in creating, preserving and utilising wealth through effective financial management as a key objective in helping clients.

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Kelly Collins

Kelly Collins

Client Service Manager

Kelly has worked in the Financial Services Industry for over 10 years and has supported David since 2013. Kelly’s primary background is in customer service and administration.

On starting in the industry, Kelly initially focused on direct shares, stockbroking administration and client liaison. Since moving to the Client Service Manager role, Kelly has developed skills encompassing all aspects of financial planning including client advice implementation and term deposit management.

Kelly’s experience in the direct share environment, especially management of estates, provides a key part of the direct equity expertise in Integrity’s Client Service Team.

Returning from Parental Leave following the arrival of her second child, Kelly has developed further honed multi-tasking skills after juggling the demands of a growing family.

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Jasmine Smith

Jasmine Smith

Client Service Manager

Jasmine has worked in the financial services industry for over 12 years in all areas of client administration, working with David since 2013.

Jasmine has extensive knowledge and experience in client service including implementation of advice, portfolio reporting, assisting with the establishment of Self Managed Super Funds (SMSFs), term deposit management and a long history of helping clients with their enquiries.

Jasmine’s attention to detail, yet gentle approach, means she is able to solve the trickiest of questions for our client community.

Jasmine has gained her Certificate III in Financial Services qualification.

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Merrilyn Smith

Merrilyn Smith

Client Service Manager

Merrilyn has worked in the financial services industry for over 11 years in all areas of client administration, and is a new addition to our client services team, returning from Melbourne to join the team in June 2019.

Merrilyn has extensive knowledge and experience in client service including implementation of advice, managed fund administration, assisting with the establishment of Self Managed Super Funds (SMSFs) and process improvement for the previous practices she has worked with. Merrilyn’s experience with direct shares constitutes the other part of our administrative support for direct equity investments.

Merrilyn’s warm and caring nature continues to endear her to our clients and she has already established herself as a valued member of our team.

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