The Fatal Error with Super

More Australians Are Dipping Into Their Super

Superannuation is one of the most powerful tools Australians have to fund retirement. Yet, growing numbers of people are accessing it early, often without understanding the long-term consequences.

According to the Australian Tax Office (ATO), applications for compassionate release of super have jumped from 39,000 in 2019–20 to nearly 69,000 in 2023–24. Most of these applications (around 80%) were for medical treatment or travel related to medical care.

While compassionate access provisions exist to support people in genuine need, the growing trend suggests something deeper is shifting, a change in how Australians view the purpose of super itself.

Has the Mindset Around Super Changed?

Super was designed to support Australians in retirement. But government policies and temporary measures, such as the pandemic-era early release scheme, have blurred those lines.

During COVID-19, over 2.5 million Australians withdrew a combined $38 billion from their super. For many, it was a financial lifeline. But for younger Australians, it came at a steep cost, reducing average balances by around 51%.

In some cases, those withdrawals went towards short-term spending, with research showing a large portion was used for everyday expenses, takeaway food, and even gambling. This has since fuelled the misconception that super is accessible for discretionary spending, not just for retirement.

The Rise of Predatory Early-Access Schemes

Compounding the issue, social media is now flooded with advertisements from companies offering to “help” Australians unlock their super early, often under the guise of legitimate medical or financial need.

These promotions imply that early access is simple and risk-free. In reality, they often come with high fees, misleading claims, and, in some cases, falsified medical reports to justify compassionate release.

The Super Members Council (SMC) has expressed alarm at this trend, warning that Australians are being encouraged to withdraw funds for non-essential procedures, far beyond the original intent of compassionate access provisions.

Their analysis shows the financial impact is substantial. Withdrawing just $20,000 at age 30 could mean $93,000 less at retirement, simply due to the loss of compounding returns.

When Early Access Is Legitimate

There are legitimate reasons for early release of super, including:

🔹 Compassionate grounds (for medical treatment), home modifications, or preventing the forced sale of your home.

🔹 Terminal illness or permanent incapacity.

🔹 Severe financial hardship.

🔹 Balances under $200.

These provisions are designed as a safety net, not as a shortcut to fund lifestyle expenses or elective treatments.

The Hidden Cost of Withdrawing Super Early

Withdrawing from super too soon may feel like a quick fix, but it can dramatically reduce your financial security later in life.

Here’s what you stand to lose:

The Power of Compounding

Superannuation grows through compound interest, earnings on your earnings. When you withdraw funds early, you lose decades of growth potential. A $20,000 withdrawal at age 30 could mean nearly $100,000 less at retirement.

Tax Advantages

Super is one of the most tax-effective investment structures in Australia. Contributions and earnings are generally taxed at just 15%, far lower than most marginal tax rates. Pulling money out means forfeiting these tax benefits and potentially paying additional tax on your withdrawal.

Reduced Buffer in Retirement

Depleting your super now means less capacity to weather market downturns or unexpected expenses later. With average super balances already lower for women and younger Australians, this can significantly increase the risk of outliving your savings.

Emotional and Behavioural Risk

Accessing super early can create a mindset that super is “spendable.” This undermines long-term discipline, one of the key behavioural factors that help investors succeed.

Why Super Still Deserves Your Trust

Despite ongoing changes to policy and taxation, superannuation remains one of the most effective ways to build wealth for retirement.

Here’s why:

🔹 Tax concessions — contributions and earnings are taxed at concessional rates, and earnings in retirement can be tax-free.

🔹 Forced discipline — strict access rules help protect your long-term savings from short-term decisions.

🔹 Compounding returns — the longer your money stays invested, the more powerful the compounding effect.

Super isn’t perfect, but it remains a cornerstone of Australia’s retirement system, one that rewards patience, discipline, and long-term thinking.

The Takeaway

Using your super for non-essential spending may solve a short-term problem but can create a much larger one later in life.

At Poole Advisory, we encourage clients to view their super not as an obstacle, but as an opportunity, a way to secure freedom and confidence in retirement. If you’re ever uncertain about your options, it’s worth seeking professional advice before making decisions that could impact your future quality of life.

Protect your future – your super is designed to support the life you’ll thank yourself for later. Plan well. Live more.

Compliance Disclaimer:

This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns.

Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917