Men and women are different; we don’t have to tell you that. But what is becoming increasingly apparent is that there is a significant gap that exists between what men have saved for retirement compared with the retirement savings of women.
The figures are quite alarming. The average super balance in 2009/10 at retirement was approximately $198,000 for men and just $112,600 for women. That sort of money would not last long in retirement when you consider that the Association of Superannuation Funds of Australia (ASFA) suggests that a single person will need $41,197 a year to have a comfortable retirement. Of course this amount is debatable and will depend on your desired lifestyle in retirement. However, it demonstrates that the average retirement savings of Australian women are falling well short of the mark. Note that the age pension for a single person amounts to $20,667 p.a. (including pension )
Why the gap?
Australian employers contribute 9.25% of an individual’s salary to their chosen superannuation fund. The figure was originally set assuming that you would be on the average weekly earnings for your entire adult life. As we know, this is not necessarily the case for anyone and particularly for women.
A few of the main factors contributing to the general disparity in gender retirement savings are:
- Many women take considerable time out of the workforce to care for children and often to care for elderly or ill relatives.
- The propensity for women to work in lower paid jobs such as childcare and retail.
- Women are much more likely to work part-time than men.
These factors combined mean that the average 25 year old man, working over the next 40 years, will earn about one-and-a-half times the prospective earnings of a woman.
Looking closer at the gap
Let’s look at the example of Mary who, at 31, has just had her first baby. She has been working a while and her salary of $100,000 has accumulated $50,000 super. She plans to have more children but would like to be at home while they are very young; she is looking at taking 5 years off. Mary would also like to work part-time whilst the kids are at primary school so she anticipates 3 days a week for about seven years. That means that at 43 she will recommence full-time work with an anticipated retirement age of 67.
The following table* compares her projected super balances if she works full-time to retirement or takes some “life breaks.”
Making up the difference
The shortfall in the above calculations is significant. But as Saward Dawson’s Financial Planning Manager Vicki Adams says, “Life breaks are important for many women and the rewards often outweigh the sacrifices. But some simple planning with your financial advisor can assist with your financial security in retirement. There are quite a few options available to help women to increase their retirement savings but acting early and with good advice is essential.”
1. Regular savings: If you are working, saving as much as possible is a great habit. Think about how much you would save over 20 years if you cut back on one take-away coffee every day and took your own lunch to work several times a week. Do the simple calculation and you will be amazed!
2. Salary sacrifice: This saving method has a number of benefits not the least being that it is very tax effective. Super contributions are taxed at 15% which is a considerable tax saving compared with the top marginal rate. However, there is a lot to understand to gain the full possible benefits and you should discuss your personal circumstances with your accountant or financial advisor.
3. Splitting super with your spouse: You may be able to transfer your super contributions from the previous financial year to your spouse. Tax advantages may be available by doing this as well as quite a few other potential benefits. Once again, you should discuss this with your financial advisor who will be able to explain all the best options for your circumstances.
Talk to Saward Dawson
Call Vicki Adams on 9894 2500 to arrange an appointment to discuss your specific circumstances. The options are many and Vicki will be able to help you to discover the best way forward.
* Calculations are based on the following assumptions: $100,000 pa salary (pro rate for part-time), 3% inflation, rate of return on superannuation 7% after fees and before tax of 15% and a superannuation contribution rate of 9.25%. The results are in today’s dollars.