How to fill the retirement savings gap

The latest research from the Association of Superannuation Funds of Australia (ASFA) confirms one of the greatest financial challenges facing our society today: the disparity in retirement savings between men and women. The ASFA reports that from 2015-16, the average super balances for all persons aged 15 and over were $111,853 for men and $68,499 for women.

In percentage terms, this leaves women with an average of just over 60 per cent of what men have in their super. If women were at such a disadvantage in any other area of life there would no doubt be an outcry, so it's time to take action on this serious imbalance.

Pre-retirement years are critical
In the crucial lead up to retirement, the gap widens even more, with the average women’s super balance at a meagre 52 per cent of men in the 55 to 59 year age group.

While women are at a significant disadvantage when it comes to super amounts, the problem gets even worse when you consider that women on average live longer than men, which means their retirement savings need to stretch even further. Current life expectancy for women who reach the age 65 is 21.62 years, while for a man the average is more than three years less at 18.54 years.

How will living standards be affected?
So, how will these relatively low balances impact your retirement lifestyle? That will depend on what kind of lifestyle you aspire to, but to try and take an objective view, we can look at some modelling that the ASFA provides in this area.

It has developed a benchmark for retirement budgeting known as the ASFA Retirement Standard. This benchmark sets out how much yearly income is needed for a ‘modest lifestyle’ and how much is needed for a ‘comfortable lifestyle’, based on a range of common living and recreational expenses.

These benchmarks are updated quarterly to reflect inflation. The most recent figures suggest that a single person needs $24,270 per year for a modest lifestyle and $43,695 per year for a comfortable lifestyle. When compared with the low level of women’s super balances, these figures are a stark reality check for women who want to have the funds to enjoy retirement.

Why such an imbalance?
The imbalance between men’s and women’s super has many causes. While women are certainly more career-minded than they were in days gone by, there is still the reality that many choose to pause or give up work altogether to have children. Income earning ceases, super accumulation is put on hold, and the benefits of compound returns are seriously impacted.

Another factor is the greater proportion of women involved in the casual workforce. Casual workers who earn $450 or less per month do not get the benefit of compulsory employer superannuation contributions, putting them at a distinct disadvantage long term.

Family dynamics can also be a cause, with divorce commonplace and many women left to bear the costs of child rearing alone. If during married life, they were not earning income and not building their own super, they are left in a particularly vulnerable situation once they are by themselves. Thankfully, laws now give women a right to an equal share of their husband’s superannuation as part of the breakup of assets in a divorce settlement — but there is a lot of ground still to be made up.

What's the answer?
The remedy for the disadvantages women face in saving for retirement must be based on both a societal and personal response. There is no doubt that the government must act decisively to give incentive for women to address the imbalance.

The ASFA has several recommendations that should be considered, including:

  • Removing the $450 monthly threshold for receiving the super guarantee (SG)
  • Increasing the SG rate to 12 per cent as soon as possible
  • Paying super on paid parental leave
  • Allowing catch-up contributions for people with low balances.

All of these suggestions can have a positive effect, but it is equally important for women to protective with their super, so that they can develop their financial independence and take full advantage of the incentives that are already available.

Those on lower incomes can access the government’s low-income super contribution (LISC) scheme which can net up to $500 p.a. extra toward your super. The super co-contribution scheme is another opportunity for low-to-middle income earners to benefit from up to $500 in government super contributions.

If you work casually and earn less than $13,800 per year, your spouse can receive up to a $540 tax offset for contributing to your super, allowing you to accumulate super independently. Women who are self-employed or employed full-time can also take advantage of the super tax incentives on concessional personal contributions.

Seek professional assistance
To ensure you take full advantage of the available super tax incentives and have a concrete plan to build retirement independence, why not talk to a financial planner? They can help you map out targets for financial growth, and give you the expertise and objective counselling that can help you achieve real financial security on your terms.

How do you feel about the need to build retirement security, particularly for women?

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