So the new financial year has rolled around and it turns out you’re eligible to withdraw another $10,000 from your superannuation. You’ve budgeted well and you’re going okay despite the pandemic and don’t really need the $10,000 in cash right now. The question of whether to withdraw super is a difficult one…
Do you jump at the opportunity to withdraw $10,000 from your super, tax free and put it towards your slowly growing house deposit? Or do you leave it for your retirement?
For those who withdrew $10,000 in the previous financial year, deciding to withdraw again (criteria permitting) could mean a gain in $20,000 for singles or $40,000 for couples in ‘savings’ towards a house deposit, but it’s an equivalent loss from your retirement fund. Withdrawing your super now, when house prices are forecasted to fall, means that you could get your foot into the property market quicker and at a lower price than expected. This could be a smart move but there are still risks involved.
The cons of withdrawing your super early
- The more you withdraw and the earlier you withdraw in your work life, the more money you lose in the long run for retirement. This is because if you’re younger, with a lower super balance, there’s less money in your fund earning interest throughout your working life. As a result, withdrawing this much at a younger age can mean losing almost $100,000 down the line in super.
- Withdrawing now while the market is low also means that you’re withdrawing your super at a loss. Shares, stocks, bonds, property and infrastructure – wherever your money has been invested, is most likely low in value. Not only are you withdrawing devalued money, but you’re missing out on the chance for that money to go back up in value once everything settles down and potentially withdrawing it at a time it’s worth more (but with the withdrawal fees).
- Withdrawing your super early doesn’t guarantee home loan approval as it could suggest to the banks that you’re not earning enough to sustain yourself. If you’re eligible to withdraw your super early, that means you’re either unemployed, working reduced hours, earning significantly less money or are receiving a government support benefit such as Job Keeper. With tighter lending criteria already in place prior to the pandemic, it might be less likely that a bank will approve your home loan if you’ve had to access this scheme.
The pros of withdrawing your super early
While there are risks to withdrawing your super now, putting it into a savings account and using it to enter the property market later might still be a beneficial option. Given that the median house price currently sits around $800,000 and that a deposit required for a house this price sits anywhere between 5% ($40,000) and 20% ($160,000), withdrawing your super could save you the average eight years in time it takes to save for a deposit and lower the amount of lenders mortgage insurance you’ll have to pay, all tax-free.
While the decision is ultimately up to you, it’s highly recommended that you plan ahead and exhaust all other available options before committing to anything. If your only reason for withdrawing is to increase the deposit amount you have for your first home, why not consider if the First Home Loan Deposit Scheme or the First Home Super Saver Scheme better fits your needs? If you’ve evaluated these options and still want to withdraw your super, perhaps also consider having a voluntary super contribution plan in place once the pandemic settles, so that you don’t feel the strain on your retirement fund later on.
All in all whichever you choose, whether you’re withdrawing your super for a deposit, to get by day to day during these trying times, or for any other reason, be smart with your money and remember to spend wisely! If in doubt, it’s always best to contact a financial adviser to find out more or see if there are any other options out there for you.
Want to speak to someone now? Schedule a consultation today!
Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstance and requirements.