Unfortunately, women tend to have less money for retirement than men. In this article, Catherine Chivers, Senior Manager Strategic Advice, Perpetual Private and I address the gender superannuation gap and discuss the key considerations to take when it comes to your retirement plan.
In 2017, research conducted by The Association of Superannuation Funds of Australia (AFSA) indicated that on average men are more likely than women to have superannuation and to have a higher account balance. There are a number of reasons for this, including women having more time out of the paid labour force for family and other reasons and women more likely to be employed in part-time and/or lower paid occupations.1Of women approaching retirement in 2014, about 50 per cent had a low balance (nil to $49,999) while for men it was 33 per cent. Only 18 per cent of women had a high balance ($200,000 or over) while 37 per cent of men did.2
These are some pretty confronting numbers which reinforces the need for women to be considering their retirement plan. And, the best bit? It’s never too early - or too late - to get started!
Key considerations when it comes to your retirement plan
So, what can you do to be on the right track when it comes to achieving your retirement goals?
Outlined below are two top suggestions for women to bear in mind when it comes to making the most of managing their retirement savings – and to avoid the pitfalls.
1) Think about the difference between saving versus investing
Women are statistically less likely to invest than men. A study completed by ASX has found amongst all Australians that own direct shares, only 43% are female compared to 57% of men3.
Why could this be the case?
Despite women being great at planning and navigating life events (including putting money aside to cover these expenses), as well as budgeting generally, women are more risk averse when it comes to investing than men and also have less confidence in their ability to invest successfully. It’s a fact that women prefer reliable and guaranteed returns much more than men4, which makes savings accounts more attractive to women.
While savings accounts are less volatile in nature so could be considered a less ‘risky’ investment, they typically grow more slowly than money held in investments such as shares or property. This happens because shares and property tend to have more volatility in their value, which makes them a little bit ‘riskier’. And when I say ‘volatility’ I mean movement – either upwards or downwards – in their value.
This means that getting the right mix that suits your circumstances is really important. Some women prefer to take on less risk than others when it comes to investing. And that’s OK so long as your decision to do that is an informed one. There’s no ‘one size fits all’ solution – everyone is a bit different.
The crucial thing to be aware of is that while investing in more conservative investments like cash, may seem less ‘risky’, this tends to come at a cost over the longer term. This happens because it is less ‘risky’ it will grow much more slowly over the longer term than investments which are a bit ‘riskier’ such as shares and property. And if you have more of your money that’s earmarked for your retirement sitting in cash, this can cost you over a lifetime.
Am I suggesting that every woman should invest their retirement money in ‘riskier’ assets? No way! But - what I am definitely saying - is that things like investing to suit your attitude towards risk, your desired income in retirement as well as your timeframe until you want to retire are all inputs to consider so that your retirement plan appropriately reflects your circumstances and goals. This is where advice that’s tailored just for you, is a really good idea.2) Focus on your superannuation saving
Australian women are much more likely than men to take time off from work during their career. This is often due to looking after children, but women are also more likely than men to take care of their parents or other family members. This is one of the biggest reasons (along with women earning less) that women tend to have lower super balances than men5.
Existing superannuation law allows you to make up this gap by contributing extra when you return to work. The government allows you to put $25,000 each year into your super before tax, lowering your taxable income so you pay less tax overall.
And, did you know that as long as certain requirements are met, you can carry forward any of the $25,000 you didn’t use, for up to five years. This means that if you have the financial ability to do so, you can make a maximum contribution of $125,000 into superannuation in one financial year. While this is all a bit complicated, the best bit of all this is that you may even be able to claim this contribution as a tax deduction if your circumstances are right.
On top of this, depending on your situation, contributions can also be made on an after-tax basis. While this means you can’t claim a tax deduction for making them, you can add extra funds into superannuation to give your retirement savings a bit of an extra boost.
How can I get started furthering my retirement savings?
Something worthwhile considering: did you know that, if you earn $100,000 and put in an extra $5,000 into your superannuation balance pre-tax, you’ll only pay income tax on the $95,000 instead? This means that you’ll pay $2,100 less tax, and, you’ll boost your super by $5,000!*
When its right for you, superannuation can be a pretty sweet way to avoid being a scary statistic.
1. The Association of Superannuation Funds of Australia (ASFA) (2017) Superannuation account balances by age and gender
2. HILDA, Wave 14 (2014), Characteristics of males and females with low superannuation balances near retirement ages, Table 1
4. ASX Australian Investor Study - Pg. 64
5. Gender Inequality, Work Hours, and the Future of Work” – Institute for Women’s policy research
Disclaimer: Based on 2019/20 income tax rates for Australian resident individuals. The tax payable figure comparison Includes Medicare Levy plus the effect of the Low Mid Income Tax Offset. The $5,000 contributed to superannuation is treated as a concessional contribution. This means that 15% tax will be levied upon the contribution being received by the relevant fund (or $750). This amount has not been reflected in the above example. However, if it was, the ultimate tax saving by contributing $5,000 into superannuation pre-tax on an income of $100,000 would be $1,350.
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