So you just raided your super. What next?

So you've accessed your super early. Here's how much you'd need to salary sacrifice to catch up. Image: Getty
So you've accessed your super early. Here's how much you'd need to salary sacrifice to catch up. Image: Getty

Around 2 million Australians have withdrawn their superannuation early, with 500,000 emptying the vault entirely.

But once the dust settles and the immediate financial crisis period ends, the major financial move could leave many wondering: ‘What next?’

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.

Source: www.canstar.com.au - 25/06/2020. Based on a starting balance per APRA Annual Superannuation Bulletin, starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $10,000 (or $5,000 for starting age 20 scenarios) is applied to balance at the start of the fourth quarter of the first financial year. Monthly salary sacrifice amount assumes salary sacrifices begin at start of the third financial year, with amounts paid into the super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and applicable age group. End balance at retirement is shown in "today's dollars", i.e. it has been adjusted for inflation (assumed at 2.5%). Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

If you’re in your 20s…

Source: www.canstar.com.au - 25/06/2020.  Based on a 20 year old with a starting balance per APRA Annual Superannuation Bulletin (less than 25 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $5,000 for Scenario 1a and 1b is applied to balance at the start of the fourth quarter of the first financial year.  Scenario 1b assumes person begins salary sacrifices at start of third financial year, with amounts paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium of $112.25 is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and age of 25 years old. End balances at retirement are shown in "today's dollars", i.e. they have been adjusted for inflation (assumed at 2.5%). Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

If you’re in your 30s…

Source: www.canstar.com.au - 25/06/2020. Based on a 30 year old with a starting balance per APRA Annual Superannuation Bulletin (25 to 34 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $10,000 for Scenario 1a and 1b is applied to balance at the start of the fourth quarter of the first financial year. Scenario 1b assumes person begins salary sacrifices at start of third financial year, with amounts paid into super fund quarterly. Scenario 1b assumes person begins salary sacrifices at start of third year, with amounts paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium of $112.25 is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and age of 25 years old. End balances at retirement are shown in "today's dollars", i.e. they have been adjusted for inflation (assumed at 2.5%). Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

If you’re in your 40s…

Source: www.canstar.com.au - 25/06/2020.  Based on a 40 year old with a starting balance per APRA Annual Superannuation Bulletin (35 to 44 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $10,000 for Scenario 1a and 1b is applied to balance at the start of the fourth quarter of the first financial year.  Scenario 1b assumes person begins salary sacrifices at start of third financial year, with amounts paid into super fund quarterly. Scenario 1b assumes person begins salary sacrifices at start of third year, with amounts paid into super fund quarterly.  Employer contributions are presumed taxed at 15%.  SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return.  Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases.  Average life insurance premium of $189.34 is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and age of 45 years old. End balances at retirement are shown in "today's dollars", i.e. they have been adjusted for inflation (assumed at 2.5%).  Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only.  Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account.  Past performance is not a reliable indicator of future performance.

If you’re in your 50s…

Source: www.canstar.com.au - 25/06/2020. Based on a 50 year old with a starting balance per APRA Annual Superannuation Bulletin (50 to 54 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $10,000 for Scenario 1a and 1b is applied to balance at the start of the fourth quarter of the first financial year. Scenario 1b assumes person begins salary sacrifices at start of third financial year, with amounts paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium of $198.80 is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and age of 55 years old. End balances at retirement are shown in "today's dollars", i.e. they have been adjusted for inflation (assumed at 2.5%). Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

If you’re in your 60s…

Source: www.canstar.com.au - 25/06/2020. Based on a 60 year old with a starting balance per APRA Annual Superannuation Bulletin (60 to 64 year old age range), starting gross annual income of $86,237, growing 2.1% annually, per ABS Weekly Earnings and Wage Price Index, retiring at age 67. Person's wage is assumed to have decreased by 20% from the fourth quarter of financial year one to the fourth quarter of financial year 2. Withdrawal amount of $10,000 for Scenario 1a and 1b is applied to balance at the start of the fourth quarter of the first financial year. Scenario 1b assumes person begins salary sacrifices at start of third financial year, with amounts paid into super fund quarterly. Employer contributions are presumed taxed at 15%. SG contribution amounts per Government announced rates. Investment returns assumed to be 7.90% per APRA average 10-year annualised rate of return. Net performance deducts average fees calculated at the start of each year and based on products in Canstar's database for the person's age and balance (to the nearest $20,000 up to a maximum of $140,000); to account for diminishing dollar based fees as the balance increases. Average life insurance premium of $198.80 is assumed charged at the end of each year (increasing annually by 2.5%) based on products in Canstar's database for an average balance of $80k and age of 55 years old. End balances at retirement are shown in "today's dollars", i.e. they have been adjusted for inflation (assumed at 2.5%). Please note all information on income, annual superannuation fees and performance returns are used for illustrative purposes only. Actual returns and the value of your investment may fall as well as rise from year to year; this example does not take such variation into account. Past performance is not a reliable indicator of future performance.

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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