The perils of cashing out your super

Close to retirement?

Frustrated and angry with your super fund?

Thinking of cashing out your super?

That’s understandable.

The share market crash last September hit Australia’s super funds very hard.

And many people, who are about to retire, have had a rude shock when they looked at their prospective payouts.

But, as we all know, acting in anger can lead to bad decisions.

And there are two things many people are overlooking right now.

The first is the income superannuation funds earn, from dividends, rent and other sources.

The second is likely capital growth.

Investment consultant Russell Dew says that, broadly speaking, that income  is something like 6 per cent a year, for balanced funds and, perhaps 8 per cent a year for a typical growth fund.

Fees might take 1 per cent of that.

So if you have, say, $100,000 in your balanced fund super pot, you would lose a prospective income of $5,000 a year, or some $96 a week, by cashing out your super.

If you are in a growth fund, you would be saying “no” to an income of $7,000 a year, or almost $135 a week, with that decision.

These are not huge amounts, but they would help with the grocery bills.

And there are those likely capital gains to consider as well.

The share market crash, which hit your payout so hard, is already passing.

The market is already up by some 10 per cent from its low point – and likely to go higher – as the global economic crisis passes.

Cool, rational thought is particularly valuable in a crisis.

And those who cash out in haste might well repent at leisure.

Get some good advice.  Be prepared to pay for it.