The Swiss was leading 6-1, 5-2 when the 21-year-old called time on the encounter two games on from taking a medical timeout for treatment on a blister.
Per the New York Times' Ben Rothenberg, it was a disappointing way for Federer to join Marin Cilic in the final:
But the 36-year-old had played a brilliant match until Chung's retirement, and there is little doubt Federer would have advanced had his opponent had continued playing.
The defending champion now has the chance to win a 20th Grand Slam title against Cilic in Sunday's final.
The Croatian beat Briton Kyle Edmund in straight sets on Thursday to reach his first final in Melbourne, but he will need to produce the performance of a lifetime if he is to down Federer.
The 19-time Grand Slam champion has not dropped a set at the 2018 Australian Open and came out of the blocks rapidly against Chung, breaking him in the opening game of the match.
He saved a break point in the second game but was never threatened again on serve. Federer breezed through the opening set, claiming two further breaks.
His trademark fluidity and composure was on show at Rod Laver Arena, and there was little Chung could do to combat Federer's brilliance.
At 5-1 down, Chung was able to save four set points, but the reigning Australian Open champion sealed the opener with a sumptuous forehand winner, as Eurosport UK shared:
Federer's intensity did not wane, and he produced a backhand passing shot of pure class to break again to go up 3-1 in the second.
After his treatment at 4-1 down, Chung could only last two more games before approaching the umpire and calling time on the match at 30-30 in the eighth game of the second set.
It wasn't long ago that some were speculating whether Federer would win a Grand Slam title again given he went four full seasons without one from 2013 until 2016.
He is now on the verge of claiming a third inside 12 months, with his 2017 Australian Open final triumph against Rafael Nadal having come on Jan. 29 last year.
Only Cilic, who lost to Federer in last year's Wimbledon final, stands in the way as the Swiss looks to write more history in his unrivalled career.