You may be aware that the average woman’s superannuation balance at retirement is $59,000, well short of the calculated $360,000 you need for a ‘modest’ retirement (or $660,000 for the preferred ‘comfortable’ retirement). And in fact this figure just takes into account the average life expectancy of 83 years old – if you reach retirement, your life expectancy is likely to be well into the 90s.
You may also know about some of the reasons why the average woman’s super balance is significantly less than the average man’s balance at retirement, including because of the following:
• Women are more likely to work part time – this means less contributions to super over your working life
• Women are more likely to have left the workforce for a period of time for children or being a carer for a parent – this generally means NO contributions to super
• The gender pay gap of 18.2% – not only is it less that you receive in cash but also less that will be paid into your super by your employer.
• Women tend to select less risky investments, and this may be reflected in their chosen investment options in super – over the long term, this may be less growth in your super balance.
But are you aware of new changes to superannuation that may make saving for your retirement even more difficult?
This week it was announced as part of the repeal of the Minerals Resource Rent Tax that increases to superannuation guarantee contributions would be further suspended. The employer mandated contributions rate is 9.5% as at 1 July 2014, up from 9.25% last financial year and was 9% for the previous decade. The 0.5% increase has now been suspended until 2021, in a deal made with the Palmer United Party to have the mining tax repealed.
The Financial Services Council has calculated that this will mean $128 billion less that Australians will have for retirement. And don’t be too sure that your employer will decide to give you the lost increases in extra salary!
The previously scheduled increases over several years meant that the final contribution rate would be 12%, which is at the low end of the estimated contribution rates of between 12% to 15% to meet that comfortable retirement lump sum of $660,000.
Low income earners have also lost the benefits that were part of the proposed Low Income Superannuation Contribution which would give a refund of contributions tax up to $500 for incomes less than $37,000.
So this means it’s more important than ever to make sure that you take an interest in your super fund at an early age. You have more options than just relying on the contributions your employer makes, and you will need to take an active interest in your retirement planning.
Things you should be always considering:
- Salary sacrifice into super – this has tax benefits for anyone earning over $37,000, as your contributions and earnings will be taxed at 15% rather than your 34.5% marginal tax rate.
- After tax contribution number 1 – if you earn less than $34,488, you may be eligible for a $500 Government co-contribution on a $1,000 contribution.
- After tax contribution number 2 – if a spouse earns less than $10,800, a contribution of $3,000 may equal a tax deduction of $540.
- Review your superannuation fund fees.
- Review your investment options in your superannuation fund and make sure it is both in line with your estimated retirement age and your attitude to investment risk.
- Check your insurance options within super – is the amount of your insurance eating into your super balance or can you take advantage of level premiums that will save you money over the long term?
Making small changes now will be much less painful than having to ramp up your contributions later in life to reach your comfortable retirement goal.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.