Many experts and industry members warned that withdrawing superannuation should only ever be considered a last resort due to the triple whammy of a lower balance and a reduced opportunity to earn interest, the fact that many were withdrawing super while the market was low and the fact that many face reduced earnings potential in the future.
However the ability to pay for essential products and services in the present is tantamount.
So, where should Australians start when it comes to repairing their superannuation?
“Thankfully there are plenty of ways you can boost your super, some not even requiring you to add in a cent. For example, if you focus on what you can control it won’t cost you anything but it can gain you plenty. Fees, asset class, performance and insurance are four elements that you should spend some time on as all can impact your nest egg,” Canstar’s money expert, Effie Zahos told Yahoo Finance.
“The Productivity Commission previously highlighted the impact high fees can have on your retirement savings. A seemingly minor increase in fees of 0.5 percentage points can cost a typical full-time worker a staggering $100,000.”
A good rule of thumb is to look for total fees of 1 per cent or less.
Zahos said Australians should also consider non-traditional ways to boost their super. For example, some funds now offer plans where online retails pay cash rewards directly into a super fund. That way it’s easy to contribute without realising.
Boosting your super to catch up
If you need to take bigger steps, Canstar ran the numbers on just how much extra Australians need to contribute a month to make up for the $10,000 or $20,000 raid.
“The good news is that if you are eligible for early release of your super funds under Covid-19 there are ways you can minimise or even eliminate the long term cost of early access,” Zahos said.
“A 30 year old that’s taken $10,000 out of their super would see themselves over $43,000 worse off in retirement if they do nothing to make up the difference. Canstar’s analysis shows that to catch up this 30 year old would only have to contribute $90 every month (before tax) in order to ensure they’re not losing out on retirement.”
Let’s break it down
While the average 30 year old woman who withdrew $10,000 of their super will need to contribute an extra $90 to their super every month, or 0.86 per cent of the average salary, a 60 year old man would need to contribute an extra $254.
That’s based on the extra contributions flowing three financial years after they withdrew the super.
If you’re in your 20s…
If you’re in your 30s…
If you’re in your 40s…
If you’re in your 50s…
If you’re in your 60s…
The gender question
Zahos noted that Australian women retire with an average 40 per cent less in their super than men, meaning it’s critical that women find ways to make up the difference.
“Of course there are a number of reasons why women have less super but unequal pay, hours spent on unpaid work and the fact that most women work part-time or casually contribute to this gap,” she said.
“It’s important that women who do access their super during Covid-19 understand the impact and consider what options are available to them to minimise the impact. This could include taking advantage of the government's co-contributions, low income super tax offset, spouse’s contributions and or salary sacrificing when financially viable to do so.”
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