Australians who take out $20,000 from their superannuation due to the COVID-19 economic slowdown will sacrifice nearly $79,000 from their retirement nest eggs, according to new Rainmaker modelling.
Rainmaker modelled after-fee, after-tax superannuation outcomes for a 30-year old member who starts working at 25 years old and will continue until the age of 65. The member starts at a salary of $45,000 a year, with 1% p.a. wage inflation and is paid contributions at current SG level of 9.5%. Their superannuation fund returns 5% before fees.
The member would end up with $423,309 in superannuation savings by the time they are 65 years old.
However, if they were to avail the Federal Government's $10,000 early release measure, and withdraw that amount from their superannuation, they would end up with $40,250 lower end balance of $383,049.
If this person was to avail the $10,000 release twice (as is permitted by the government for this financial year and the next), this person would be $78,952 worse off in retirement as their end balance slips to $355,357.
The modelling shows while the early release amounts may give Australian breathing room now, it will bite into their retirement savings.
The impact for older members who take out the cash will be lower. A 45 year-old will lose $22,300 to $43,800 in their end balances from the withdrawals.
"Rainmaker estimates while the long run retirement savings costs for a 30 year old accessing the $20,000 is $80,000, for a 45 year old, the long run retirement savings cost is $43,000 - that is half the cost foregone by the younger member," Rainmaker executive director of research and compliance Alex Dunnin said.
"If a 30 year old takes the cash...[it] could eventually cost them $80,000. But if you need the cash, you need cash. It will have a long run costs however."
The modelling doesn't assume gaps in work, or gender pay gap.
"Women, on average, earn less so they will be probably more likely to need this cash and be less likely to catch up the contributions later," Dunnin said.
The government's early release provisions have been largely supported by some stakeholders such as Grattan Institute and the Financial Services Council. However, it has also been panned by others including Industry Super Australia and Labor who have argued dipping into superannuation should not be the first solution but the last resort.
ISA's modelling says a 20-year-old, who takes out $20,000 from their superannuation could lose more than $120,000 from their retirement balance. For 30-year-old members and 40-year-olds, the loss in retirement savings will be about $100,000 and $63,000, respectively.
"Some members will have lost their jobs or had their hours dramatically reduced and industry super funds will do all they can to help them," ISA chief executive Bernie Dean said.
"But members should tread carefully and only think about cracking open their super after they've taken up the extra cash support on offer from the government- super should be the last resort given the impact it can have on your retirement nest egg."
Read our full COVID-19 news coverage and analysis here.