Is Your Super Paying the Price?Almost one million mature aged women have chosen not to work, according to a Productivity Commission report released on 17 January 2011.
But many are overlooking the impact that leaving the workforce will have on their long term finances, especially their super.
The report on the workforce participation of women aged 45 and over found that 898,900 of the 2.7 million women aged 45 to 64 in Australia are not in the workforce. Only 58,200 of these women are considered to be unemployed.
While the contribution to the workforce of women aged 45 to 64 has more than doubled in the past three decades, fewer mature aged women are working than in comparable countries.
Those who do work are retiring at a much later age. The average age of a woman at retirement is now 62, just two years below the average retirement age of a man.
But while women are catching up with the retirement age of men, they are ending up, on average, with half of what a man's super balance would be at retirement. The Association of Superannuation Funds Association (ASFA) figures show that the average retirement payout for a woman is only $73,000 compared with $155,000 for a man.*
Health Super Chief Operations Officer, Carol McKelson-Timmins says: "Leaving the workforce means women's retirement nest eggs are reduced, as they often do not understand what they can do to keep making contributions to their super voluntarily."
"Coupled with the fact that women on average live longer than men, many Australian women may not be as financially comfortable as they would like to be in retirement," Carol says.
The picture is even worse for divorced women who have to rely on their own resources in retirement. ASFA estimates that recently divorced women currently have around $40,000 in super compared to around $145,000 for men. *
So what can we do about it?
1. One word: budget
Health Super's Carol McKelson-Timmins says the first step to take is to budget. "You need to be armed with the facts," she says. "Think about how much you will need to be financially secure at age 60, as well as in the short-term, and write it all down."
Working out how much you'll need for each year you expect to be retired is critical to achieving the retirement you want. And with the average woman's life expectancy now 85, that can be confronting.
2. Your spouse can help
Under the current rules, if you earn less than $10,800 a year, your spouse can claim a tax rebate of 18 per cent on the first $3000 of the contributions they make on your behalf, saving up to $540 a year in tax. The $3000 threshold reduces by $1 for every $1 that you earn over $10,800 and reduces to nil if you earn more than $13,800.
3. Make your salary work harder
Child rearing is one of the most rewarding and time consuming jobs around, but it does take women out of the paid workforce either completely or part-time. This will have impact on your retirement nest egg.
One of the best things you can do is to salary sacrifice while you're earning a wage. And it can be a highly tax effective way to save.
"Salary sacrificing is another option to consider," Carol says. "If you make contributions from your pre-tax salary you may reduce the amount of tax you pay on your salary. You can add any savings you make to your super contribution and boost your super savings."
4. A little bit can go a long way
"This is where the budgeting comes in," Carol says. "Really think about what you can contribute in the short and long term to your super fund and make voluntary contributions. It really can make a difference to the health of your retirement nest egg."
There is good news for those who do make voluntary contributions. If you earn less than $61,920 a year and make after-tax voluntary contributions to your super, you may be eligible to receive a co-contribution from the government of up to $1000, Carol says.
5. Do you have the right investment strategy?
It's important to regularly review your super investment portfolio in light of your expectations for its performance. "There may be better investment options depending on your age and stage of life," Carol says. "Work breaks and lower income levels mean that women need to make their superannuation work as hard as possible." Your super fund can be a good source of information about which investment option is right for your situation.
Super Health Checklist
1. Estimate how much super you think you'll need to retire on. Your super fund's online calculator may help you work this out
2. Roll your super into one account to avoid paying more than one set of account fees.
3. Start saving as early as you can to make the most of compound interest.
4. Find out if you can salary sacrifice part of your salary to boost your super savings and receive tax benefits.
5. Consider making voluntary contributions to boost your super. You may also be eligible for a government co-contribution of up to $1000.
6. Review your investment mix for your stage of life. If you are younger, you may consider taking a more aggressive approach to your super investments.
7. Get some financial advice. Shop around for a reputable financial advisor, preferably one that doesn't charge you any commissions.
*Information provided by Health Super
Health Super is a $9 billion industry superannuation fund representing over 210,000 members across the health and community services sector in Australia.
Health Super has over 40 years' experience in working to maximize the retirement savings of its members. As a regulated entity, it is fully compliant with the Australian Prudential Regulation Authority (APRA).
Health Super offers its members a number of specialised superannuation products, including accumulation and defined benefit accounts and a full range of pension products. The company is forward thinking in its approach, incorporating strategies such as a default life cycle plan into members' investment portfolios.
In 2008, 2009 and 2010, Health Super was awarded a Platinum rating by SuperRatings, an independent research firm, ranking it among the top 15 per cent of superannuation funds in Australia.
Carol McKelson-Timmins is Chief Operations Officer of Health Super. She has held this position for over five years.
Carol has over 20 years experience in business process and change. She has worked in a number of senior management roles in global companies including TXU, United Energy, Ikon Energy and Canadian Imperial Bank of Commerce. Her area of specialty is pioneering corporate strategies on operations, service marketing, governance, risk management, regulatory change and investment banking.
Carol holds several qualifications from RMIT and the Securities Institute of Australia. She has also participated in various leadership programs at the Melbourne Business School.