Over the past five years, more than 150,000 Australians have dipped into their retirement savings early to cover medical expenses, raising concerns about the financial impact this may have later on.
While the Australian Tax Office’s (ATO) compassionate release of superannuation scheme offers much-needed financial relief for those dealing with severe medical conditions, it also poses long-term risks to individuals’ retirement security.
So, is using your super for medical costs the right choice? Let’s dive into the details.
What is the Compassionate Release of Super Scheme?
The compassionate release of superannuation scheme allows people to access their retirement savings early for specific medical treatments if they face life-threatening, acute, or chronic conditions. Some popular treatments include weight loss surgery, dental procedures, and IVF, often with hefty out-of-pocket costs.
In 2022-23 alone, more than 40,000 Australians were approved to access this scheme, collectively withdrawing $730 million from their super. While this can be a lifesaver for many, the growing trend of people using their retirement savings for medical purposes is starting to raise eyebrows.
Why is this Trend Concerning
While withdrawing your super may offer immediate relief from medical costs, it can leave you financially vulnerable in the long run. For example, taking out $20,000 at age 40 could reduce your retirement balance by more than $100,000 by the time you retire. That’s a significant chunk of your future savings gone for a short-term need today.
Moreover, it can be argued that the real issue isn’t access to super but the rising cost of private medical treatments. In fact, prices for some treatments have skyrocketed by as much as 72% in just four years, making it harder for everyday Australians to afford essential care like dental work or specialist visits.
Weighing the Pros and Cons
If you’re considering accessing your super for medical expenses, it’s crucial to think about the long-term consequences. While it can provide immediate relief, the reduced super balance can drastically impact your retirement lifestyle. A $20,000 withdrawal today might seem manageable, but the cumulative effect of lost investment growth over time can have a much larger impact.
It’s also important to consider other alternatives before turning to your super. For example, could private health insurance cover some of the costs? Is there a less expensive public option, even if it means waiting a bit longer? These are the questions worth exploring before making a decision.
Using your superannuation for medical costs can provide much-needed financial relief during tough times, but it’s not without significant risks. While for some the trade-off is worth it, others may find themselves struggling in retirement due to a reduced balance.
Before accessing your super, it’s important to consider all your options, consult with a financial adviser, and think about how your future self might feel about the decision.
Balancing your immediate medical needs with your long-term financial security is no easy task, but with careful planning, you can make an informed choice that works best for your situation.
