The financial 'difference' for women
Women and financial empowerment… we have come so far in recent decades, but still have a long way to go.
In today’s article, I talk about the common areas women lag in financially, and I explain how you can close your retirement income gap.
The main issues
- Gender pay gap. Men on average are paid 22.4% more than women. This gap is unsurprisingly also higher in key management positions, where women receive 24.9% less than their male peers. Large gaps also occur in the legal (29.7%) and medical and health care (32.3%) professions.
- Lower super balances. While the pay gap is one reason why women have less in super than men, another big contributor is time taken to care for children or family. Among developed nations, Australia has the third lowest employment rate for mothers, particularly sole parents.
- The cost of being single. Single women (and men) lose out on the financial ‘economies of scale’ enjoyed by couples. An increasing number of people are living alone, of which 55% are women.
- Generosity. Women often put others first. It’s great to be generous with friends and family, but you need to set boundaries to ensure you stay on track financially. Gifts to family and charitable donations must be taken into account, as part of your overall financial plan.
Focusing on Super
While it will take the significant social and political change to redress some of the financial imbalances between the sexes, there are things that women can do to improve their long-term financial position:
- Understand your situation. If you are considering taking time out of the workforce, what are the implications? As an example, 35-year-old professional Rebecca earns $120,000 pa and has a super balance of $60,000. She would like to have three children and be a full-time mum for seven years before returning to full-time work. After this, she may have around $77,450 (17%) less in super at retirement age.
- Spouse contributions. Rebecca’s partner could fund some of this gap and potentially receive a tax benefit each year by making a spouse contribution to her super fund while she’s not in paid employment. Bear in mind this only works as long as they stay together.
- Review your Super growth. You have choices on how your super is invested! Consider changing your superannuation investment option from the default ‘balanced‘ to the more robust ‘growth‘ option. Over time the growth option will outperform other options. Please seek professional advice in this area.
- Extra payments. Another possibility is to increase contributions as soon as you return to work. If Rebecca salary sacrifices just 3% of her pre-tax income to super, she could wipe out the estimated shortfall by the time she retires.
- Protect your lifestyle. Check the insurance cover within your super fund. Most people are surprised when they realise how little cover they have. Ensure you have the right levels of cover for you – it will be more affordable than what you think.
Planning is key
The reality is that more women, particularly single women, generally face greater financial hurdles than men. Being smart with your planning is essential to getting ahead in the long term. A Certified Financial Planner will take into account your current situation and your goals, to make sure that you and your family are on the right track with your wealth creation, superannuation, and budgeting.
This article was written by Tamara Gillman, a Certified Financial Planner who loves helping people achieve financial independence. Tamara is the Director of True Journey Financial Planning and provides advice on personal insurance, superannuation, budgeting and wealth creation.
Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Please seek personal advice for your situation, prior to acting on this information