When you’re faced with the unexpected1 June 2022
We’ve all heard the expression ‘saving for a rainy day’. It makes financial sense. Things don’t always go to plan and a ‘rainy day fund’ allows you to stay on top of your finances.
But some life events are harder to bounce back from than others. Unexpected illness or injury or the death of a family member can change your life in ways you never imagined. The emotional distress of these events can develop into feelings of despair if you’re not financially prepared.
If insurance isn’t the answer to your unexpected expenses, your super may be.
How super can help you sooner
Your super is designed to provide for you in retirement. Normally, you can’t access your super until you reach your preservation age, but in some cases you may be eligible to withdraw your super early.
Early super access on compassionate grounds
When you need to:
- pay for medical necessities (such as medical treatments, palliative care, making modifications to your home or car due to a severe disability and funeral expenses)
- meet other certain expenses (like a loan repayment to avoid foreclosure on your mortgage).
Early super access for financial hardship
When you need to:
- pay for your living expenses (you must be in receipt of Centrelink benefits i.e. income support payments, for a consecutive period of at least 26 weeks).
Things to consider before dipping into your super
Dealing with life’s unexpected events can be overwhelming. But with the right support, you may be able to get on top of your expenses without needing to draw on your super.
Here’s a quick guide to help you plan your way out of debt.
Check your insurance
Most people have some level of insurance, either with their super fund or as standalone policies outside of their super. This may include income protection, death insurance and total and permanent disablement.
Depending on your situation and level of cover, you may be able to claim on one of your policies.
Remember, if you have multiple super funds, check with all of them!
Get financial counselling, it’s generally free
Financial counsellors are skilled professionals who provide free advice and support to people struggling with bills and debt. They can:
- assess your financial situation
- provide advice about your options – this includes what to do with unpaid bills
- assist if you’re being harassed by debt collectors
- refer you to Centrelink to check if you’re eligible for extras government assistance
- refer you to other services you might need, such as legal, accommodation, health and crisis services.
Find out more about financial counselling on the government’s MoneySmart website.
Revisit your budget
A close look at your household expenses could help you work out where to cut back.
The government’s MoneySmart budget planner is a great place to start if you need help to set up your household budget.
Weigh up the pros and cons
Your super is one of the biggest investments you may ever make. To keep you on track with your financial objectives, always weigh up the pros and cons of your options.
If deciding whether to withdraw your super early, consider:
- the impact on your retirement
- the tax that may be payable
- the impact on any other benefits you’re receiving (e.g. Centrelink payments).
1 Source: Services Australia, Parental Leave Pay, accessed on 30 May 2022.
2 Eligibility criteria applies. For more information see the ATO website: https://www.ato.gov.au/individuals/income-deductions-offsets-and-records/tax-offsets/superannuation-related-tax-offsets/