The financial wellbeing of women in retirement is a significant and growing concern, as women still lag substantially when it comes to retirement balances. On average, a woman retires today with $157,050, while a man’s average balance is 72% more, at $270,710view disclaimer1. So why is this and what can women do now to change their outcome in retirement?
While most people immediately point to the gender pay gap, there’s a need to look deeper. Research shows that many women put the needs of others before their own: a lot of women are primary carers for childrenview disclaimer2 and, in 70% of cases, women are the primary carers for ageing parentsview disclaimer3. Inevitably this means more women are working part time – currently 46% of working women do – and this impacts their retirement savingsview disclaimer4. Retirement literacy is also an important issue to consider. A recent study in the US found women have lower retirement literacy rates than menview disclaimer5. In Australia, a Government report found women are generally highly confident in their ability with money, especially when it comes to budgeting, saving, dealing with credit and managing debt, however they’re less confident than men when it comes to more complex issues like investing, understanding financial language and ensuring enough money for retirementview disclaimer6. More education is needed to support people in their planning. Finally, once they’re in retirement, women tend to live longer than menview disclaimer7. This means their money needs to last longer.
When women decide to take timeout of the workforce or to work part time, the conversation is usually about the impact this will have on the household budget. Rarely do women look at the impact this will have on their superannuation balances.
To help illustrate the impact, let’s look at three different scenarios a woman may face in her working life:
The chart below compares her super account balance at retirement and the age at which her retirement savings will run out.
Assumptions: This example is for illustrative purposes only. Amounts are shown in today’s dollars: the person starts working at age 22 and retires at 67. Initial salary $50,000 p.a., 1% salary increase p.a. Salary increases during the time off work. 9.5% p.a. of salary contributed to super. Retirement income is $47,000 p.a. The assumed fund average return is 4.5% p.a. When on leave for 10 years, no super is contributed. When working flexibly, salary is calculated at 60%, during ages 32-42. No Age Pension received. Insurance premiums haven't been taken into account, super taxes have. Other investments are not taken into account.*The life expectancy of a 67 year old woman today is 87 years. Source: Based on Australian Bureau of Statistics data, Life Tables, States, Territories and Australia, 2014-2016.
Lower or no super contributions over the ten year period means there’s less capital to grow, and means the accumulated savings will then run out faster in retirement (unless spending is also reduced).
Today, many companies offer paid parental leave, on top of any Government payments. Some businesses also continue to contribute to super during periods of parental leave, which can have a big impact on balances over the longer-term. These types of incentives can be important to consider when assessing potential employers.
While the factors discussed result in sub-optimal retirement outcomes for women generally, the area of greatest concern is for single women – just one in four can expect to have a super balance large enough to reach the Association of Superannuation Funds of Australia (ASFA) Comfortable standard for retirement income of $545,000view disclaimer8. What’s more, the superannuation component of retirement income for single females is 32% lower than for single malesview disclaimer9.
Much of this can come down to working part time or taking time out of the workforce. But increasingly we’re also seeing the financial impact that a separation or divorce can have on women.
Most people drastically underestimate the impact of a separation, so it’s important women plan ahead if they find themselves in that situation. Sadly, St Vincent de Paul found that older women are the fastest growing demographic of homeless in Australia – due to family breakdown or death of a partner. One of the key issues is the costs of rent, especially in capital cities resulting in homelessness for increasing numbers of older womenview disclaimer10.
view disclaimer1. ‘Superannuation statistics, Association of Superannuation Funds of Australia, September 2018.
view disclaimer2. Australian Bureau of Statistics, Gender Indicators, Australia, Catalogue no. 4125.0, September 2018.
view disclaimer3. Australian Bureau of Statistics, Caring in the Community, Australia, Catalogue no. 4436.0 (2012), p 5.
view disclaimer4. Workplace gender equality agency, February 2017: ABS (2017), Labour Force, Australia, January 2017, cat. no. 6202.0.
view disclaimer5. RICP Retirement Income Literacy Gender Differences Report, from The American College of Financial Services, July 2017’.
view disclaimer6. ‘Financial literacy. Women understanding money’, Australian Government Financial Literacy Foundation 2008.
view disclaimer7. Australian Bureau of Statistics, Life Tables, States, Territories and Australia, 2014-2016. Catalogue no. 3302.0.55.001.
view disclaimer8. ‘ASFA Retirement Standard’, Association of Superannuation Funds of Australia – June quarter 2018.
view disclaimer9. ‘The need to look deeper on the gender gap’, Willis Towers Watson, 2016.
view disclaimer10. ‘Homelessness for older women – the hidden crisis’, St Vincent de Paul Society, Media Releases 2016.
view disclaimer11. MLC quarterly Australian wealth behaviour survey’, MLC, Q1 2017.
view disclaimer12. Rice Warner - www.ricewarner.com/valuing-financial-advice, September 2015.
Any advice and information on this website is general only, and has been prepared without taking into account your particular circumstances and needs. Before acting on any advice on this website you should assess or seek advice on whether it is appropriate for your needs, financial situation and investment objectives.
Any general tax information on this website is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.
National Australia Bank Limited ABN 12 004 044 937, AFSL 230686.
MLC Limited uses the MLC brand under licence. MLC Limited is a part of the Nippon Life Insurance Group and not part of the NAB Group of Companies.