6 reasons women need to be engaged with their super
6 reasons women need to be engaged with their super
1. Inequality of incomes
On average, women earn less than men for doing the same kinds of work. In some industries it can also be harder for women to prove their value and worth which can have a direct impact on the total base salary you may earn and/or bonuses paid.
I’m not here to give opinion of whether this is right, wrong or fair but just to make you aware that this will impact your superannuation. Superannuation Guarantee is the 9.5% per annum figure that your employer pays to your superannuation fund on your behalf. As it is percentage based, if we earn less, less money is contributed on our behalf, making our retirement benefits statistically lower across the board when we come to retire.
TIP: Engage with you super now, plan early, and contribute to your fund, this could potentially save you on tax as well as boost your retirement balance.
2. Maternity leave / Career break
It is not uncommon for women to take a career break to birth your children and care for them in their early years. Even a break as short as six months, is six months of contributions your fund is not receiving. The power of compounding returns can create a significant impact on your final retirement sum because of this.
EXAMPLE: Katie, 33, earns $95,000 + $9,025 employer. Katie fell pregnant and decided she was only going to take 6 months maternity leave. This means her contributions for the year will go down by $4,512.50.
That may not sound like much right? BUT, Katie has a goal to retire at 65. If that $4,512.50 was invested until retirement and earned an average rate of 7% per annum, Katie has actually missed out on approximately $39,400. Now, if Katie decided to take a year off instead, that figure blows out to $78,700. That’s if Katie sticks to only having one child.
TIP: Do your research. Are you eligible for paternity payments from the government or your employer? You could direct a small portion of this to your super or address the time missed with additional contributions when you do return to work.
Women live longer than men – this is a statistical fact. This means that you need your retirement monies to last longer, making it even more important to maximize the sum you retire on.
TIP: Plan early. Work out the kind of lifestyle you’d like in retirement and work with a financial planner on the best way to get there. They’ll do the number crunching for you and if they are good, tell you what you need to do to overcome any shortfalls.
4. Super can protect your family
There are ways in which insurances such as Life, Total & Permanent Disablement & Income Protection can be funded from superannuation. If cash flow is an issue, but you want your family and wealth protected, this could be a solution for you. How much cover you need is a balance between the ideal, the affordable and the emotional factors, and is only suitable for you, in your unique situation.
TIP: Find out whether your current superannuation has options for insurance, you may not even know you have it. Work with a financial planner to work out how much you need, there is no point having too much or too little. A financial planner also has access to wider range of insurance providers that only distribute to advised clients. There may be a better, cheaper product or even feature or option you never knew was available to you.
5. Impact of compounding interest
You’re probably familiar with this concept thanks to your credit card. Paying interest on the interest on the interest. This can actually work for you in regards to super. Returns are paid on returns which are paid on returns. Make sense? Becoming engaged with your super, ensuring you are suitably invested and contribute what you can early, will magnify this effect and create a drastic difference to your overall balance.
EXAMPLE: Back to Katie, her super balance is currently $98,000. A simple 1.5% difference in fees or difference in investment return may equate to a lower super balance at retirement of $612,000! That is, she would end up with $1,455,000 instead of $2,067,000.
TIP: Find out where you’re invested and how many super accounts you actually have. Is it passive or active? A financial planning service may be offered by your fund and can assist you in choosing the correct investment option for you. External advisers can also help you with this and won’t be restricted to only providing advice within the options available in your current product.
6. Constantly changing
Like most aspects of adult life, superannuation is an evolving and ever changing beast. The current environment is seeing super change in more ways than it has since Simple Super was legislated. It is no longer simple. It is important that you understand the how’s, what’s and why’s of superannuation. Superannuation still remains the most tax effective savings vehicle for you.
TIP: Use the resources available to you. This may be your financial planner whose role it is to educate you. It could also be ASIC’s www.moneysmart.gov.au website which houses a multitude of helpful tools and resources to understand all things money. There’s even a section dedicated to women.
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