Australians are dipping into their super funds like Winnie the Pooh sticks his paw in a jar of honey. The Australian government decided to let us take out up to $20,000 in two bites. Millions of people didn’t need to be asked twice.

The official estimate for the amount removed from Australia’s retirement savings system is now a whopping $42 billion.

According to ME Bank — a bank owned by super funds — the group most likely to raid their super are those aged 18-24. 30% of them dipped in compared to a population average of 8%. Because of the magic of compounding, the effect on retirement incomes in this group is much higher than the effect on a person with a shorter period until retirement.

The way compounding works is via a kind of curve we are all familiar with by this point of the pandemic: an exponential one. In each time period the increase is higher, making the curve turns towards vertical at the right-hand side.

As the next graph shows, a 20-year-old with 45 years until retirement could have expected $20,000 in superannuation to turn into $420,000 extra in retirement. Whereas a 35-year-old with 30 years until retirement could expect that $20,000 left in super to turn into $152,000 extra. The longer you have until retirement, the more those few dollars matter.

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