Truth be told, Australia was one of the least prepared countries for this crisis.
That’s because the average Aussie household is shouldering some of the highest household debts in the world, and has skint savings: half of us have less than $7,000 in the bank, according to the Grattan Institute.
So for those people who have lost their jobs or their small businesses,the government is offering you a gamble:
They’ll let you take up to $20,000 from your super, tax free, to live on.
(Specifically, it kicks off with $10,000 in mid-April, then you can request another $10,000 in the new financial year.
To access the dough, you need to be: unemployed, or getting a Centrelink payment like youth allowance, or have had your working hours or business income reduced by at least 20%.)
On the upside, you’ll have money to tide you over for the next few months.
On the downside, you could be putting your retirement at risk.
So, what should you do?
Well, with a hat-tip to the late Kenny Rogers: “If you’re gonna play the game, boy, you gotta learn to play it right”.
There’s a saying in poker: you’re not really playing the cards … you’re playing the other players.
So, let’s see who’s sitting around your table.
First, you’ve got your bank. They’ve been dealt a really bad hand. That’s why they’re giving their affected customers up to a six month ‘pause’ on their home loan (and in reality, all their debts).
Next to them sit your utility providers and telcos, who will offer payment arrangements.
Finally, there’s your landlord, who looks like they’ll be forced to go easy on renters who are in financial difficulty.
In other words, if you’ve lost your income, you can put on your poker face and call their bluffs.
All you need to do is contact their hardship department (pro tip: email them, their phone lines will be jammed), and explain your situation, preferably with written evidence.
So, should you still take the $20,000, just in case?
Well, the Gambler advises “you never count your money while you’re sitting at the table”.
But I don’t agree.
See, you may think you’re cashing in $20,000 of your super money, but you’re really not:
If you’re 45 years old, that $20,000 would be worth $50,000 by the time you retire.
If you’re 35 years old, it’s an $80,000 decision.
And if you’re 25 years old, you’re really gambling with $132,000!
Because you’re cashing out your investments during a share market crash, where the price of stocks are 25% cheaper than they were a few months ago. You’re selling out cheap. And history tells us that over the long-term the stock market always goes up — through panics, pandemics, wars, depressions and recessions.
Still, I was curious to know how popular the Government’s proposal would be.
So on the weekend I asked people on Facebook: would they be touching their super because of coronavirus?
Some 64,000 people were so utterly bored that they took the time to vote on a poll on … err … super.
Yet what’s encouraging is that the vast majority of them said ‘no’ — they wouldn’t touch their super.
For them, the long-term stakes were too high … and instead they’d decided to fold and walk away.
Of course, that doesn’t help you if you’re a hospitality worker and you’ve got to put food on the table.
Your kids can’t eat compound interest.
Yet before you cash out part of your retirement savings, make sure you have exhausted every last option available to you (including eating baked beans for a month or two).
Remember, this crisis will likely last a few months — yet your retirement will last decades.
If you do have to access your super, make a pact with your future self that when you get back to work, you’ll increase your repayments to 15% of your gross wages, so you automatically pay it back.
Do whatever you can do now to avoid a royal flush of your financial future.
Tread Your Own Path!