Women are more financially independent than ever but as they retire they are still at a significant financial disadvantage to men. Not only do women live longer, but they often face life cycle and financial hurdles that most men do not.
A baby girl born in Australia today can expect to live to 84 while a baby boy can expect to live to 791. While this is good news, it does pose specific challenges for women. Not only do they need to make their savings stretch further in retirement than men of the same generation, but they typically have less money to show for their life’s work.
- Women are the often sole caregiver, especially after divorce, leading to an increase in short-term costs.
- Broken periods of work lead to lower income.
- Women live longer and therefore need more funds after retirement.
The gender money gap
After 20 years of compulsory superannuation, women still retire with little more than half as much in the kitty as men. In 2009/10, the average retirement payout was close to $198,000 for men but only $112,600 for women.2 As these are averages, many women retired with much less. Worse still, 38.5 per cent of women had no super at all.
When you compare these final super payouts to the cost of living in retirement, it is clear they don’t add up. According to the Association of Superannuation Funds of Australia, a married couple needs $55,080 a year to meet their definition of a ‘comfortable’ lifestyle in retirement, while a single woman needs $40,297 a year.4
No doubt balances will grow as the superannuation system matures and the Superannuation Guarantee paid by employers to their employees increases from 9 per cent to 12 per cent by 2019. But that is a long way off and it will not be enough to provide a financially secure retirement for older women who have not received the full benefits of compulsory super or those with extended periods out of the workforce.
Long-term thinking begins at 40
Retirement tends to be out of sight and out of mind for younger women, but that begins to change some time after their 40th birthday. Suddenly retirement is within sight but many women realise they are financially lagging behind their male peers. This can happen for a variety of reasons:
- Women are more likely to take time out of the paid workforce to care for young children. When they do return to work, it is often part-time, possibly for some years.
- Even when women do return to work full-time, they are likely to be paid less than their male counterparts. As at November 2011, women earned 17.6 per cent less than men, averaged out across all industry sectors.5
- Divorce or widowhood often means a financial setback for women.
As a result of these circumstances, women tend to be more focused on the daily challenges of juggling work and family and often struggle to find the time and surplus cash to invest in their own future. Any savings they do put aside are likely to be earmarked for the mortgage and debt reduction or short-term goals such as a holiday, leaving an important long-term goal like retirement as a lower priority.
A super plan
With careful planning and the help of your financial adviser, there are some simple strategies you can put in place that will make a real difference to your future financial security, without sacrificing today’s lifestyle:
- The most painless way to contribute more to super is to speak to your employer about salary sacrifice. A small amount taken out of your pre-tax salary on a regular basis will not only boost your retirement savings but will also reduce the amount of tax you pay.
- You can also make voluntary contributions from your after-tax pay up to a maximum of $25,000 a year. And if you are eligible for the super co-contribution the government will match your contribution up to a maximum of $500 a year.
- If you have a higher-earning partner, he or she may be able to make contributions to your super under the spouse contributions offset.
Talk with your adviser about your options and check the ATO website, www.ato.gov.au.
Whatever strategy you follow, the sooner you get started, the longer your money has to grow, and the more you have to look forward to in retirement.