Like most of us, I have a mum. My mum like many Australian women has a superannuation balance that will never shoot the lights out. When she retires she won’t be flying first class to Paris, won’t be purchasing a property by the sea and certainly won’t be living an extravagant lifestyle. That’s fine and I know she would have no problem with this, but it would be nice if she had the option.
My mum like most Australians who are 60+ has the majority of her retirement savings in her super. While growing up in country NSW had many advantages (lack of traffic, clean air, fresh local produce, your neighbours were basically family) one disadvantage is that selling the family home, downsizing and realising a large amount of equity is not an option for my parents.
My mum has worked for as long as I can remember. When I was young, as a registered nurse and later in respite care. She has worked in the disability support service sector for over 25 years and loves what she does. While the work is incredibly rewarding, she was never in any danger of hitting the highest marginal tax bracket or of her employer super contributions exceeding her caps.
Over the years I have sat in front of hundreds of clients, from all different walks of life, and I have seen a theme. That is, women tend to have smaller super balances than men. Many of these women have successful careers, earn decent wages and you would expect be in a position to fund a comfortable retirement regardless of their relationship status. However, the more I have looked into this, the scarier it has become. It is clear that the majority of women in Australia are not on track to fund a ‘comfortable’ lifestyle in retirement.
Did you know?
Women tend to have less in superannuation than men. Men aged 55-64 in 2013-14 had a much higher average superannuation balance than women the same age: $321,993 compared with $180,013. Source
Women tend to live longer than men. A woman born in 2013-2015 would be expected to live to 84.5, where a man can expect to live to the age of 80.4. Source
Some great insights provided here. Source
Women in retirement rely more on social security. In 2013-14, for people aged 65 years and over who were not in the labour force, a superannuation pension or annuity was the main source of income for 10.9% of women and 17.7% of men. Government pensions and allowances were the main source of income for 77.8% of women and 72.4% of men. Source
So why is this? Is there some secret that men have that result in a higher superannuation balance at retirement?
It’s a result of several issues and events that compound over a lifetime.
Women tend to be paid less. 23% less on average! In 2014 the average female wage was 87% of the average male wage (non-managerial adult hourly ordinary time cash earnings). Source
Although Corporate Australia has recognised this and seems to be slowly trying to amend this. Source
Women take time off work to have children. This might not sound like much, but let’s look at an example.
Jane takes 12 months off works twice in her early 30’s to have two children. She is earning $70,000 p.a. The super guarantee of 9.5% on $70,000 is $6,650 p.a. less 15% contribution tax = $5,652.50. Multiply this by two gives Jane $11,305 in net super contributions that she has missed out on. Now this might not seem like a lot, but if you jump on Moneysmart (a great free government website) and use one of their calculators (in this instance I used the compound interest calculator and assumed a 7% return with no regular deposits Source ) this $11,305 would be $91,757 in 30 years’ time!
Women are more likely to be employed part time or on a casual basis than men.Source
Women tend to study more, so may spend less time on the workforce . In 2015, more young women (18-24 years) were studying for a Bachelor Degree or higher qualification (34 per cent compared with 28 per cent of young men).
Unfortunately, being aware of the problem and accepting it does not sit well with me. I am sure many of you would only want the best for your mother, partner, sister or daughter. You would want them to be in the best position to live the life they want and one day enjoy a comfortable retirement.
So what can we do?
While there is no one cure for all and everyone’s circumstances are different, there are several things both women and men can do to have a more comfortable lifestyle in retirement and enjoy a better relationship with money.
Education. Understand and be engaged earlier. I can recall a client of mine, who was a primary school teacher, telling me during one of our initial meetings “Wow, this is great, I wish they taught this at school”. I couldn’t agree more! Financial awareness if often something we learn from our parents or have to learn for ourselves over many years, however this does not have to be the case.
Read as much as you can. There are many more resources available (such as Moneysmart) now than there were when I was in high school. I came across this article earlier in the year and it had some great, practical insights of a successful career woman. Source
Contribute earlier. Albert Einstein said compound interest was the 8th wonder of the world! He was not wrong. A little on a regular basis can make a huge difference.
Take a closer look at your super fund. How is it invested? What are the fees like? Do you hold insurances in super and have you doubled up outside of super?
After seeking professional advice, you might also look at some more specific strategiessuitable to your personal situation. These may include:
Spouse splitting. You can ask your super fund to transfer up to 85% of a financial years taxable super contributions to your spouse. This can be beneficial in instances where there is an age gap, protection from the age pension asset test, or as simply another means of diversifying your combined retirement savings and spreading your risk. I feel we will see more of this with the introduction of the lifetime $1.6 million transfer balance cap.
Spouse contributions. While not a new strategy, this has been updated from the 2016 budget. From 1 July 2017, where one spouse earns less than $40,000, the other spouse can contribute an after tax (non-concessional) contribution to their spouse super fund and receive up to a $540 tax offset.
Catch up super contributions. Set to commence from 1 July 2018, people with a super balance below $500,000 will be able to access their unused concessional contributions cap space to make extra concessional (before tax) super contributions
Plan. Have a plan that does not have you relying on someone else (e.g. inheritance, partner, windfall). This could be as simple as using some calculators like the ones available on Moneysmart, figuring out what you would like to have in retirement and working backwards to determine where a little savings can be directed to get you there. For most of us, super is the most tax effective environment but it does not have to be the only tool in your arsenal!
If that all sounds too hard, consider engaging with a financial planner. Many planners offer a free initial 1 on 1 appointment and this could be the catalyst to get the ball rolling.
Disclaimer– This article has been prepared without taking into account your individual personal objectives, situation or needs. You need to consider the appropriateness of any information within this presentation, in light of your own personal circumstances, before you act on this information. I strongly recommend you seek expert advice before making any significant changes to your super fund or financial situation.