Why women should take early financial steps

Many women will need to do more to build up their super balances by the time they retire. 

There’s a plethora of data showing women, on average, earn less than males and have lower superannuation balances.

The federal government’s Workplace Gender Equality Agency (WGEA) released its latest gender pay gap update on 27 February, revealing a national average total remuneration gap of 21.7% in favour of men. On average, for every $1 earned by men in Australia, women earn 78 cents.

Meanwhile, Australia Tax Office data covering the 2020-21 financial year shows that, in the 60-64 age bracket, the average superannuation account balance for women was $318,203 versus $402,838 for men – a gap of 26.6%.

As well as a reflection of the gender pay gap, lower average super balances among women also reflects the fact that employers are not required to pay super to individuals taking parental leave. And Vanguard’s 2023 How Australia Retires study found that 61% of women aged under 35 expected to take, or had already taken, parental leave. This compared with 39% of men.

Addressing an ongoing challenge

The statistics above simply set the scene for what is an ongoing challenge for women, not just in Australia but in other developed countries. That is, women are generally at a significant financial disadvantage to men on a range of fronts.

And, of course, the demographic bottom line underneath all of these statistics is that, on average, Australian women are living longer than men by four years. According to the Australian Bureau of Statistics (ABS), in the 2020-2022 period, the life expectancy at birth for women was 85.3 years versus 81.2 years for men. The 2023 Intergenerational Report predicted average life expectancies will continue to rise.

In the most basic terms, this means many women will need to do more to build up their super balances by the time they retire or they risk having to rely totally on the government’s Age Pension for income.

Chunking things down

For some women, this probably all sounds quite overwhelming. But it doesn’t have to be. With good planning, and by taking some simple, early and achievable steps – making a few small changes in your life – it’s quite possible for women to improve their longer-term financial outcomes.

Let’s look at some calculations to illustrate this. ABS data released in February 2024 shows the national full-time adult average weekly total earnings for females at November 2023 was $1,768.10. The current compulsory 11% employer paid super component on this amount is $175.22 per week, or $9,111.29 per year.

Now, let’s use an example of a 30-year-old woman receiving the average income who has now accumulated $40,000 in her super account since first starting work. By age 67, assuming she takes no breaks from work, she will have an estimated super balance of about $550,731.

But, the thing is, most women do take extended career breaks at some stage. This is often to raise a family, and when they do return to work they do so on a part-time basis.

In the example being used, this woman is expecting a child and she is planning to take a full year off work from the start of 2025, returning 12 months later at the start of 2026. In doing so she will not receive super payments from her employer, and her estimated super balance at age 67 will therefore drop to about $533,142.

And here’s where some simple, early, and hopefully achievable steps could come into play. By salary sacrificing $25 per week into her super from now, and by continuing to salary sacrifice the same amount when she returns from parental leave, her super balance at age 67 would actually rise to over $593,420.

The impact on her net weekly income of making salary sacrifice (pre-tax) super contributions of $25 per week would be marginal – only $16 per week (a few cups of takeaway coffee).

When you budget week to week, I think people do that really well. It’s about making those trade off decisions. Putting $25 a week into your super could end up being an extra $50,000 in retirement.

Making small extra super contributions before taking parental leave is a perfect example of how women can plan ahead to dramatically improve their chances of having a successful retirement.

Taking the first steps

A lot of our research actually shows that many women make good investors. Generally speaking, they’re very disciplined, they’re great at planning, and they’re research intensive. Typically, they’re also not gamblers when it comes to making investment decisions.

That said, many women just don’t spend enough time on their financial planning.

Many of us have recently made New Year’s resolutions such as learning a new language or doing something challenging in the year ahead.

So, why not think about doing something that would have the most positive long-term financial impact on your life? For example, why not spend 20 minutes a day learning more about your finances, about what steps you should to be doing to become more financially secure?

If you do that every week for a year, the improvement will be massive. Often it’s just about taking that first step.

Once you build confidence you are likely to become more engaged in the process, and then the next step is going to be easier, and the next step after that is going to be even easier again.

Seeking out financial advice

More women should also consider getting some professional advice from a licensed financial adviser. It’s evident from research that not enough women seek our financial advice. But it can make a huge difference to long-term outcomes.

You don’t have to see an adviser every year for 30 years. You could go and see someone and get some once-off advice around things that are more complex on the tax side or the super side.

Think of it in the same way as choosing to make an appointment with a specialist. You do it for your health all the time. You do it at the gym all the time with a personal trainer, and this is no different.

It might be three financial problems that you need help with. How do I maximise my super and make some smart investment decisions over the next couple of years, or take some tax-effective steps?

And then you have an hour chat and you go away and you’ve got five things that you can do differently.

Seeking financial advice is all about achieving financial independence and freedom over the long term, and importantly greater peace of mind.

Source: Vanguard March 2024

This article has been reprinted with the permission of Vanguard Investments Australia Ltd. Copyright Smart Investing™

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) (VIA) is the product issuer and operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270) (the Trustee) is the trustee and product issuer of Vanguard Super (ABN 27 923 449 966).
The Trustee has contracted with VIA to provide some services for Vanguard Super. Any general advice is provided by VIA. The Trustee and VIA are both wholly owned subsidiaries of The Vanguard Group, Inc (collectively, “Vanguard”).
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