An increasing number of Australians are opting to access their superannuation early to fund essential medical treatments, prompting concerns regarding the associated tax implications and potential repercussions on future retirement savings.
Rose Charles is one such individual whose life took a dramatic turn during the Christmas week of 2020 when she was diagnosed with cancer. Her treatment regimen, which included sixteen rounds of chemotherapy, thirty sessions of radiation, a double mastectomy, and subsequent breast reconstruction, forced her to leave her job while caring for her teenage son. Faced with ongoing financial responsibilities like utility bills and school fees, Rose resorted to withdrawing from her superannuation. She withdrew $35,000 to cover one medical procedure, part of a growing trend linking early superannuation access to medical crises.
Statistics reveal that in the last financial year, at least 50,000 Australians accessed their super early on compassionate grounds, resulting in over $1 billion in approvals. This marks a ten per cent increase compared to the previous year, as noted by Aware Super’s general manager, Peter Hogg.
However, accessing superannuation prematurely comes with significant tax implications. As Charles learned, withdrawing funds before reaching 60 incurs the tax you initially avoided. This can reach up to 22 per cent, in addition to the 15 per cent tax levied on contributions upon entering the super fund. Consequently, as Charles observed, a considerable portion goes to the government.
While individuals may receive a refund at the end of the financial year if their marginal tax rate is below 37 per cent, the overall message from financial experts is to carefully consider sacrificing retirement savings for immediate needs. Mary Delahunty, CEO of the Australian Superannuation Funds Association (ASFA), emphasised the importance of long-term planning and cautioned against rushing into early withdrawals, suggesting that better alternatives may be available for those facing pressing medical expenses.
In summary, while tapping into superannuation can provide vital financial support during health challenges, it is crucial for individuals to weigh the urgent need against the long-term impact on their retirement security. Careful deliberation and exploration of other options are recommended before making a decision to access super early.