Ripping $20k Out Of Your Super

Not long after COVID-19 reared its invisible head, Fred’s boss sent him home with one last pay slip stapled to a promise.

The promise was of course, there would be a job waiting for him once this virus passed over, like it was just a bad storm or something.

“Let’s just give it a few weeks and we should be good to go again Fred”, his boss said.

However, that was four weeks ago and now it seems like a return to ‘normal’ might be months away. Understandably, Fred’s feeling a
tad anxious.

You see, before Corona, eighty percent of Australian workers couldn’t go to the bank and withdraw five thousand dollars in savings because they simply didn’t have it. Including Fred.

But that eye-watering truth doesn’t just apply to Australia. It applies to every other developed economy as well. It’s been that way for at least two decades that I know of, but most likely more.

Not that it worries the banks. Hello, credit cards!

Not surprisingly, when the government announced that superannuants could access their super and withdraw $10,000 before June 30 and another $10,000 between July 1 and September 24, 2020, Fred felt a massive sense of relief.

However that relief was soon replaced with confusion.

You see, Fred is constantly hearing from experts (who don’t know him), that accessing his super now would be a bad idea because it will jeopardise his retirement.

But Fred couldn’t give a rats about his retirement at the moment because he’s more worried about the bills which keep showing up in his inbox.

But Fred’s not only confused, he feels guilty that he needs to tap into his super at age forty.

Or as he put it during the week…

I feel like a beggar

But is he?

No, he’s not. But I’ll tell you who is.

The beggars are all those cheap suits working for superfunds who don’t want to see, YOUR money, leaving their funds. #goodbyefees

Here, I’ll prove it to you.

Let’s suppose 1,000,000 Aussies make a successful application to access their super and withdraw $20,000 over the next six months. Which is very likely. That equates to $20,000,000,000 (twenty billion). Gone!

But wait, it gets better.

Let’s say the average superannuant is in a ‘balanced fund’ and the average fee is 0.6% [1]. This means the superfunds (in aggregate) stand to lose a whopping $120,000,000 pa in fees. Ouch!

And guess who the biggest losers will be? The Industry Funds.

You know the ones. The ones you see on TV reminding us that…“from little things, big things grow”.

They’re also the same ones who don’t pay ‘commissions’ but who spend tens of millions of dollars every year of members money on print, radio and TV advertising.

Oh, and let’s not forget the millions of dollars they’ve forked out to trade unions over the past decade as well. For the period ending June 30, 2017, that figure was $53,000,000 [2].

However, there’s another reason why they’re really nervous…

You see, most of their assets are not ‘listed’ assets. Meaning, they’re not listed on the stock exchange where they can be easily liquidated (sold) into cash.

Therefore, it would literally take them months if not years to liquidate some of their investments.

But wait, it gets worse…

Not only is the stock market down at the moment (and could drop again), but there are fears the property market will follow suit. And have you seen the clearance rates for property auctions in the past month? Not too flash, hey.

Therefore, if the Industry Funds had to sell some of their property-based assets to shore-up cash and pay out superannuants, they’d be forced to sell in a potentially weaker market well below valuations.

No wonder they’re trying to talk the likes of Fred into leaving his money in super. A run on the Industry Super funds in particular, would really hurt them.

So what should Fred do?

Fred is not a client, which means I can’t give him advice. So I run the following by him.

Firstly, consensus forecasts suggest that in the next twelve months, unemployment could reach its highest levels since the Great Depression. Hint: make sure you have a ‘stash of cash’.

Secondly, if you had your money in a ‘balanced fund’ with an Industry Super fund in March, it would have been down 30% for the month. So what if it drops again?

Hint: some of that money maybe just as safe in your pocket.

Therefore, Fred has two options. He can either increase the limit on his credit card (without any income) or access his super (debt free).

It’s not ideal, but it’s better than staring at the TV every night worrying about your money.