I’m aware of some of the long-term risks around accessing Super early, however my question is: what if I was to use that $10k of super to put toward purchasing a property? It would still leave me with a substantial balance that would continue to grow over the years as I am only 26 years old, and would be an investment toward my property portfolio that would also support my retirement in the future. It's a tricky one and i would really appreciate some advice as this one has been difficult to explore online. Thank you in advance!
Ally in Tweed Heads
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I think the most important issue to raise first is that gaining early access to your super requires you to meet one of three key criteria:
- Eligible for Job Seeker payment
- Redundant or 20% reduction in working hours
From the context of your question, it would seem you are either looking to buy your first home or an investment property. I assume this would require you take on some additional debt, which given the criteria above probably wouldn’t be the best decision in the current environment. However, as we don’t know your full financial situation, we will consider the merits from an investment point of view.
There are no guarantees in any type of investing, so your assumption that investing into property or shares via super will continue to grow should be made with caution. On the one hand, superannuation offers the lowest tax environment outside of owning your own home, hence the benefit of keeping the funds within super is the capped 15% tax rate. On the other hand, property can offer negative gearing benefits or be capital gains tax-free if it is your home, noting that you must lose money to gain the benefits of negative gearing.
Property investment requires (and allows) you to leverage the limited capital you have, meaning you are more exposed to potential upside and downside, however, property is also a depreciating asset which will require additional capital investment as it ages. Your superannuation on the other hand is invested into many different businesses in different sectors as well as property, toll roads, government bonds and shopping centres among others. Superannuation will therefore be more diversified and likely lower risk than borrowing to buy a single property. Over the last several decades, property and shares have both generated similar returns of around 8-10% per annum, hence they are difficult to split on an historical basis.
So to summarise, it’s basically a tie. One of the most important steps in saving capital for your retirement is getting started, so you have made the most important decision. In terms of accessing your super, our advice would be to avoid doing so if you really don’t need the capital; i.e. unless you have important expenses or other loan repayments due and no savings.
Playing devil’s advocate though, you may wish to consider the alternative. At 26, you will be lucky to see your superannuation in the next 40 years. 40 years is an incredibly long-time during which successive Government’s will no doubt continue to change the features of the superannuation environment. Who knows if it will exist in its current form 20 or 30 years from now? The legislation risk over such a long period of time is huge and on the assumption that you will be putting your capital to work rather than spending it on discretionary items, than the devil’s advocate would say go for it……At least this way if something go wrong at another time in the future you will at least have access to those funds.
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