A shortfall in retirement income is a devastating thing to face after a lifetime of hard work and looking after others. Many people think “it won’t happen to me”. Until it does. Perhaps it’s the result of circumstance (illness, natural disaster, divorce), unwise decisions, or simply a lack of awareness. For others, a life on low incomes leaves nothing to show for. While it is positive the issue is being discussed, the retirement gap remains a real and serious problem. And a bridge over this gap remains a long way off.
The poverty trap
In 2020, there were 3.24 million Australians living in poverty – over 13 per cent of the population. The pandemic likely made this worse. Many more live on incomes only marginally above the poverty line. Low incomes mean low super contributions and little if any disposable income to invest. But people on low incomes also lack the resources to help them change their circumstances, such as paying for specialist training to boost their earnings potential and financial advice on maximising their wealth. They become trapped.
Inequality
Exacerbating the problem is the inequality between men and women. Australia’s gender pay gap currently sits at 22.8 per cent – women on average earn $25,800 less than men. That automatically creates a superannuation gap too. Women also make up a larger proportion of casual and part-time workers, which typically have less job security. Often this is because they assume the primary caregiver role to young children and elderly parents/in-laws. Plus, women are the majority of victims of family and domestic violence – which often includes financial abuse. No wonder women over 55 are the fastest growing group facing homelessness.
What government can do
There is a lot the government can – and I believe should – do. And with an election fast approaching, now is the time to get our leaders’ ear. The aged pension for singles is currently around $22,000pa. The minimum wage is approximately $40,000pa. General consensus though suggests we need at least $43,000pa to live (excluding rent/mortgage). How do older Australians with no or low super manage this shortfall? What are they sacrificing to make ends meet? A meaningful rise in the pension would provide immediate relief.
Another policy option is subsidised retirement advice for low-income earners. The average for many pensioners is just $100,000-$150,000 in super – delivering a meagre annual income. With $400,000 in super, they could have the $25,000 pension plus around $20,000 from super and be on par. Retirement advice during their working years may help low-income earners build their super to sufficiently supplement the pension.
Help yourself
While we wait for government to act though, there are some measures you can take to help yourself:
- Build an emergency fund: Disasters sadly happen. An emergency fund helps keep you afloat when you need it, without resorting to drastic measures or credit schemes.
- Start early: The earlier you start investing, the longer those assets have to grow in value.
- Use tax breaks: For instance, strategies can add thousands to your super retirement – and cut your tax bill.
- Get on the ladder: Owning property greatly reduces your risk of poverty and homelessness in your later years. And the family home if sold is tax-free.
- Protect yourself: Proper insurance cover will help protect you, your income, and your assets.
- Protect your partner: Life and permanent disability cover can make all the difference for you should something happen to them.
- Diversify: All your eggs in one basket is a risky gamble.
- Get advice: Finances are complicated – you don’t necessarily know what you don’t know and over time it is likely to more than pay for itself, if it doesn’t instantly.
- Look after number 1: Your costs rise and earning capacity dwindles when your health and wellbeing suffers.
Implementing some basic steps now can go a long way towards bridging that income gap in retirement.