I’m assuming your wife has lost her job because of the coronavirus crisis. Early access to super was one of the first financial reliefs announced by the government to help people in situations like yours.
Of course, there would be some advantages of doing that. However, as with any major investment decision, it’s very important to seek professional financial advice rather than acting on your emotions.
Firstly, if you’re in a situation where you’re unable to afford basic living expenses, accessing super is probably the way to go. There’s a little point of discussing the pros and cons of it if you can’t afford to pay bills or groceries. This measure allows to you access two lots of tax-free lumps sums of up to $10,000 each and I know this will be a lifeline in a lot of cases.
If you don’t fall into the above category, there are important aspects of your super strategy that need to be considered. These include your age, your overall retirement plans, insurance benefits, crystallising capital losses, opportunity costs of withdrawing your capital, just to mention some.
People close to retirement may benefit as it allows them to access their super tax-free before reaching what’s called their ‘preservation age’. Under the announced measure, if they qualify, they could tap into some of their accumulation account before formally stopping work and switching into pension mode.
For the rest of us, accessing our super early isn’t such a good idea. As mentioned earlier, you’re likely to crystallise your losses. But that’s only part of the story. The other part is the opportunity cost – how much you’ll rob yourself in the long run. If you have a long way to go before retirement, accessing super now will almost certainly be a very costly exercise. Your super is your future employer. You want to make sure you maximise the opportunities during your working life to build your nest egg. Selling down quality assets in a well-diversified super portfolio (assumption) could hardly be called utilising an opportunity. Both time and compound interest will magnify the gap you cause by the withdrawal (potentially up to hundreds of thousands of dollars).
Being able to access your super simply doesn’t mean you should. There are now other financial relief options on the way that were not available at the time this superannuation measure was unveiled.
There’s the ‘JobKeeper’ payment – if your wife’s previous employer is eligible, they could register to receive $1,500 per fortnight for a period of six months for each employee (full-time, part-time and casuals employed over 12 months). This will potentially allow them to re-hire the employees they were forced to let go earlier. Simon, if your employer/or your business qualifies, you could also potentially receive this payment. The amount of $1,500 per fortnight is fixed and not income tested, meaning some people may end up earning more than they earned before. Most of the work needs to be done by the employer so clear communication between employer and employees will be crucial.
A lot of lenders have announced various mortgage repayment initiatives that allow people pause their repayments for a period of time. As you mentioned you will struggle to pay off the mortgage without your wife working, so it might be a good idea to call your mortgage provider and have a discussion. You might be able to negotiate a deferral of repayments of up to six months.
Lastly, I want to mention that there’s always some good in every bad. This crisis provides us with an opportunity to re-visit our expenses and re-set our priorities. It would be a good idea for you and your wife to sit down over the weekend, have a look at your bank/credit card statement and set up a spending plan moving forward. If you’re anything like me, you will be able to eliminate a lot of unnecessary expenses (some of them will come down automatically due to the lockdown).
One day, when this whole thing is over and your incomes will go back to normal, you may find that you suddenly have a cashflow surplus which you can allocate towards your future well-being.
I wish you all the best. Stay positive. This too shall pass.