The importance of when you can access your super

UNTIL the recent release of a research paper by the Productivity Commission, little has been said about preservation age - the age at which you can access your superannuation.

A recent email highlights some of the potential difficulties.  "I just read that the preservation age will be raised to 70 to bring it into line with the age pension.  This is stupid.  If I was a young person and wanted to retire at age 60 after many years of hard work, my super would be unavailable.  I could then be in the situation of being unable to work at 60, with a million dollars in super, and become a burden to taxpayers by having to go on the dole for 10 years."

There is no need for panic.  The Productivity Commission report was simply a research paper that modelled the impact of increasing the preservation age above 60. But, what it does do is highlight how compounding makes a huge difference for people who stay in the workforce longer.

CASE STUDY Joe is about to turn 65, earns $100,000 a year, and has $500,000 in super.  If Joe retires now, $500,000 is what he'll get. 

However, if he works for two more years and contributes the maximum concessional contribution of $35,000 a year, his super fund would be worth $663,000, if it earned 9% a year. 

In one more year, if he continued the strategy, it would be worth $756,000, and in two more years, at age 70, it would be $970,000. Yet Joe would only have contributed an extra $175,000; the other $295,000 would be from the compounding returns.

Obviously, it's worthwhile from a financial point of view to work as long as you can. 

But governments of all persuasions are well aware that there are many in the community who have to retire early due to a wide range of circumstances, which include occupation and their state of health. 

Under the present rules, preservation age for superannuation is 60 for people born after 30 June 1964, and age pension qualifying age is 67 for those born after 1 January 1957. 

As Centrelink does not assess superannuation until the member reaches pensionable age, there are many people now who have money in superannuation but are not accessing it, and are receiving Newstart in lieu. 

As our reader pointed out, this will lead to growing anomalies as superannuation balances grow, and it would not surprise me if Centrelink's treatment of superannuation changed sooner rather than later.

Noel Whittaker is the author of Making Money Made Simple, and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: noelwhit@gmail.com.



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