Three financial advisers comment on how women can boost their retirement savings.

No financial issue is more important for women than superannuation. Women face greater economic insecurity in retirement because they retire with less superannuation than men.

In 2017-18, the average balance for those with superannuation at age 60-64 was $279,167 for women and $344,718 for men – a gap of 19%, according to the Federal Government’s recent Retirement Income Review (RIR) Final Report[i].

Several factors explain the difference. Women generally are paid less than men due to Australia’s gender pay gap, meaning they contribute less to superannuation over their lifetime. The gender pay gap between men and women working full-time is almost 17%, notes the RIR.

Also, taking time off to raise a family reduces women’s lifetime earnings and superannuation contributions. A woman who works part-time and cares for two children will have a 45% gap in her super at retirement compared to a man who works full-time, shows modelling undertaken for the RIR.

Divorce is another factor. Divorce rates have steadily increased among older age groups, yet just over a third of property splits between 2006 and 2012 involved superannuation, according to research cited in the RIR.

“This suggests, when relationships break down, many people – and particularly those with lower incomes – are not enforcing their entitlement to their former partner’s superannuation,” said the RIR. “This particularly disadvantages women …”

Lower financial literacy for women, in aggregate, compared to men was another contributor to the superannuation gap at retirement, the RIR argued.

Although this superannuation gender gap is gradually narrowing, much more work is needed to ensure Australian women of all ages are not disadvantaged in retirement saving. Lower superannuation balances can materially affect the quality of life in retirement.

ASX Investor Update asked three leading financial advisers about women and superannuation, and their general advice on how women can build their retirement savings.

Taking a greater interest in superannuation, focusing on it earlier in one’s career, and getting good financial advice that suits your needs, were recurring themes in their responses.

I have seen how confronting it can be for women to have to learn about their financial position, or how to manage their expenses, or learn the best way to invest for their future for the first time in their lives after a hardship. It can feel quite overwhelming at such an emotionally vulnerable point in their lives.

I would also encourage women to start taking an interest in investing and superannuation as soon as they start their first full-time job because this converts to regular contributions to super. Nearly 10% of their income is going somewhere; they should have a passion about where it goes, who has it and how it is being looked after. This gives them a much longer timeframe to accumulate their assets.

Financial advisers should help people feel in control of and secure in their financial future. Women should try to find an adviser who will take the time to educate them and make them feel involved in the process. The length of a client meeting should not be dictated by the most financially literate person in the room.

According to Rice Warner’s Underinsurance in Australia 2017 report, the average working Australian is significantly underinsured by four times the family income for Life cover and by 75% of the family income for Total & Permanent Disability (TPD). Only a third of the working Australian population is insured for Income Protection (IP) in the event of serious injury or illness.

Women tend to be at a further disadvantage to their counterparts in this area due to maternity leave, career breaks taken to raise children and the wage gap between genders. Superannuation, life insurance and investing should not be neglected until retirement, after a calamity, or dominated by risk-takers.

One of my goals as an adviser is to help promote the paradigm shift among women in viewing these topics as future proofing, risk management and wealth protection.

Second, utilise carry-concessional contributions. If your super balance is under $500,000, you can use unused contribution caps from 2018/19 financial year on a rolling five-year basis. That means if you haven’t used the full amount of your $25,000 concessional contribution cap in 2018/19, you can carry forward those unused amounts and take advantage of it up to five years later. This is a good strategy for those on a higher income to reduce their taxable income.

Third, salary sacrifice early. If you know you are going to take time off, consider salary sacrificing up to the $25,000 concessional contribution cap early. That way, you don’t fall behind when you are not receiving any super contributions. You also get the added bonus of the salary sacrificing reducing your taxable income.

Fourth, take advantage of the government superannuation co-contribution. If you are a low- or middle-income earner (or on unpaid maternity leave/unemployed) and make after-tax contributions to your superfund, the government may also contribute up to a maximum of $500.

There are eligibility requirements, so check with a financial adviser if you are eligible. If you are in the lower income threshold and you make an after-tax or personal contribution to super of $1,000, you will receive the maximum contribution of $500.

Finally, consider rewards systems to boost your superannuation. For example, every time you shop via Super-Rewards online with its affiliated partners you receive cash back for your superannuation. The contribution type for this cash back is a “non-concessional contribution”.

Good financial advice shouldn’t cost a lot of money. A trusted adviser will often become a “lifelong adviser” and pay for his or her fees many times over by helping you build a larger savings balance in retirement, and other wealth along the way.

Superannuation isn’t scary. Mostly, it is common sense. If you thought more people would use Netflix last year because of COVID-19, and bought Netflix shares for your super, you had a 67% return on them last year. If you thought more people would eat at home during the pandemic, and bought Woolworths, you had a low double-digit total return on those shares in 2020.

Never think you are too old to do something about your super. One of my female clients in her early forties had a 45 per cent cumulative return on her superannuation over three years (before dividends). That return will make a huge difference to her future retirement savings.

When she came to me for advice, she had three separate retail super funds and was paying duplicate fees. Amalgamating those funds made a big difference on fees and ensured her existing superannuation worked as hard for her as possible.  

Every investor, of course, is different, and past returns are no indicator of future returns. What is common to all women is that you don’t need to take big risks to build your super.

Also, getting more involved in your super can be interesting. Some of my female clients now ask more questions about investing than men and aren’t afraid to dig into a company’s Price Earnings multiple, or get my view on how a recent market movement could affect their super.

By taking a deeper interest in their super, they are setting themselves up for a higher quality of life in retirement.

[1] Based on Australian Taxation Office data, p267 of Retirement Income Review Final Report.