Women and super: How to beat the odds

Apart from competing financial priorities, when retirement is still 30 or 40 years away super can seem too hard or too boring to contemplate. But ignoring super now can cost you dearly at retirement due to the compounding effect of being in a poorly performing fund or an investment option that is out of step with your needs.

Thankfully, curiosity costs nothing and that’s the best place to start closing the super gap.

Do some fact-finding

To make the most of super you need to understand it, beginning with your current super fund. If you’re not sure what fund you are in, or if you think you may have more than one fund, you can find out by logging in to your myGov account, clicking ATO and then super.

If you have had a series of jobs over the years, chances are you’ve left a trail of super accounts. Consolidating your super by rolling all your super into one fund can save you in fees and have more money working for you. But first, you need to complete your fact-finding mission.

• Dig out your most recent annual statement or check your account online to find out how your money is invested, the returns you have earned over various time frames and the fees you are paying. Even small differences in fees early in your working life can punch a big hole in your retirement savings decades later.
• Have a good stickybeak around the website, play with the online calculators and make sure all your personal information is correct.
• Understand how much your employer should be contributing on your behalf and check that their Superannuation Guarantee (SG) payments are landing in your account on time.
• Check to see if you have insurance cover and, if so, how much and what you are paying for it.
• If there is anything you don’t understand, pick up the phone and speak to your fund’s member hotline or use the online chat function.

Once you have the facts, you may want to dig a little deeper to find out how super works and how to get the most out of it. If you have already made your way to the SuperGuide website, you’re on the right track. Continue browsing super content online, read books on super and investment, and seek independent financial advice if appropriate.

Remember, there are no stupid questions. Just make sure the information sources you use are genuinely independent and not trying to sell you products and services you don’t need or want.

Plan for lean years

If you earn good money and plan to take maternity leave or time out of the workforce for any reason, consider putting a little extra into super now to make up for future lost earnings. See ‘Make extra contributions while you can’ below.

While it’s true that a man is not a financial plan, your partner may be able to top up your super while your income is low or non-existent.

If you earn less than $37,000, your other half can contribute to your super and claim a tax offset of up to $540. The offset phases out once you earn $40,000 or more. This is called spouse contribution splitting but it is open to married, de facto and same sex couples.

Mid-career women

By mid-life, it’s not just waistlines that have grown, so has the super gap. By their early 40s, women have 30% less super than men on average. In their late 40s the gap is close to 34%.

It is also around this time that many women return to full or part-time work after caring for children. Others who have not taken a career break may find they have more money to save and invest after building up equity in their home. Whatever your personal circumstances, retirement is not as distant as it was.

If you haven’t paid much attention to super up to this point, start by following the steps outlined above. Then turn your attention to some simple strategies to boost your retirement savings.

Salary sacrifice

Speak with your employer about directing some of your pre-tax salary into super. These ‘salary sacrifice’ contributions are taxed at the concessional super rate of 15 per cent (30 per cent if you earn over $250,000) instead of your marginal tax rate. When you finally retire you can withdraw your money tax free. Not so much a sacrifice as a tax-effective way to boost retirement savings.

Just remember to stay within your concessional contributions cap of $25,000 a year, which includes compulsory SG payments made by your employer.

Don’t look a gift horse in the mouth

If you earn less than $54,837 a year and make a personal (after-tax) contribution to your super account, the government will chip in up to $500. To receive the maximum government co-contribution, you need to earn less than $39,837 and contribute at least $1,000 during the financial year.

The government co-contribution decreases the more you earn and phases out once you earn $54,837 (these thresholds are for the 2020/21 financial year and only apply if your total super balance was less than $1.6 million on June 30 the previous financial year).

This is possibly the only legal way you will ever earn a guaranteed 50% return on your money.

Make extra contributions when you can

Thanks to the magic of compound interest, even small amounts of money invested early can make a big difference in the long run. Being fortysomething may not feel young, but you still have plenty of time to feather your super nest before you retire.

When your budget allows, or you receive a windfall, consider putting a little extra in super.

• You can make a tax-deductible contribution up to the $25,000 annual concessional cap, but be aware that this cap includes employer contributions and salary sacrifice.
• You can also contribute up to $100,000 a year after tax or $300,000 in any three-year period. You can’t claim it as a tax deduction, but earnings on your savings will be taxed at the super rate of 15% rather than your marginal rate and you can withdraw the money tax free in retirement.

If you are on a low or no income and have a higher-earning partner, don’t forget spouse contributions (see above).

Women nearing retirement

Once you turn 50, the reality hits that retirement is not far off. Although today’s 50-somethings won’t be eligible for the Age Pension until they turn 67, you can you access your super when you reach your preservation age, between age 56 and 60, depending on your date of birth.

If you want to retire with enough money to live well and retire while you are still young and healthy enough to enjoy it, your super may need an injection of funds. This may be easier to manage now if your kids are adults, your home is paid off or close to it, and you have more disposable income.

Whatever your situation, any extra attention you can give your super will improve your level of comfort in retirement.

Make up for lost ground

New rules provide an opportunity for low-income earners or anyone who has taken time out of the workforce to play catch-up and make additional super contributions at concessional rates.

As previously mentioned, there is an annual $25,000 cap on concessional (pre-tax) super contributions. This includes employer SG contributions, salary sacrifice and voluntary contributions. But from 1 July 2018 you can carry forward unused concessional contributions for up to five years, provided your super balance was under $500,000 on June 30 in the year before you make any additional contributions.

Say your concessional contributions in the 2018/19 financial year from all sources added up to $15,000, leaving you with $10,000 in unused concessional cap. Then in 2019/20 your concessional contributions increased to $20,000, leaving $5,000 in unused concessional cap. In the 2020/21 financial year you could make concessional contributions of up to $40,000 (your annual concessional limit of $25,000 plus $15,000 in unused caps carried forward from two previous financial years).

As well as boosting your retirement savings, any voluntary concessional contributions you make are tax deductible, so make the most of this opportunity.

Transition to retirement (TTR)

Have you ever dreamed of winding back your working hours but don’t think you could afford it? A TTR pension could help you do just that. While not as tax effective as they were prior to a recent change in the rules, they may still serve a purpose for some people.

In a nutshell, you can withdraw part of your super as an income stream called a TTR or TRIS pension and use this to replace salary income if you wind back your hours. Or you could continue to work full time, draw a TTR pension and replenish your super via salary sacrifice, effectively replacing after tax income with pre-tax income.

You can start a TTR pension by transferring part of your super into a pension account once you reach preservation age (between 55 and 60 depending on your birth date), although they work best once you turn 60 and can receive the income tax free. If you are younger than 60, then the taxable portion of your pension income will be taxed at your marginal tax rate, less a 15% tax offset.

If you think a TTR pension could work for you, contact your super fund or adviser to help crunch the numbers.

Downsize your home, upsize your super

As a final super blitz as you cross the threshold into retirement you can now tip some of the proceeds from the sale of your family home into super. This could suit singles or couples who plan to downsize to a smaller home or sell up and hit the road.

If you are 65 or older you may be able to make a downsizer contribution to your super of up to $300,000 from the proceeds of selling your home. Couples could contribute up to $600,000. This will not count towards your concessional or non-concessional contribution caps. It can only be used once, it is not tax deductible and it will count towards your eligibility for the Age Pension.

The bottom line

While our current superannuation and retirement system disadvantages women, there are still ways to boost your retirement savings. Whatever your age or stage of life, the sooner you get cracking the more options you will have in retirement.