Retirement income strategies for women

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The Treasury’s Retirement Income Review will soon publish its final report. Submissions to the Review (which closed in early February) covered a lot of ground including gender inequity in our retirement system.

Retirement income inequity is something our industry can try to tackle on a day-to-day basis.

With some well thought out strategies in place, women can move towards retirement with a positive outlook. As always, the key is to have these conversations early.

An unequal playing field

Over the years, the difference in superannuation savings between men and women has been well publicised. This savings gap is even bigger when you look at the 58-62 age group who are nearing retirement.1 The factors behind this are worth revisiting in relation to retirement planning.

Firstly, women are increasingly finding themselves in the role of caregiver at both ends of the age spectrum. Initially for their own children, and then again to ageing parents. In Australia, approximately 70% of informal, primary caregivers are women.

This has a big impact on retirement savings as most of these women are full-time carers and unable to participate in the labour force, while a smaller proportion work full-time (15%) or part-time (24%).2

It’s worth noting the combined annual value of informal care has been estimated at more than $60 billion and likely to grow as babyboomers continue to age and families grapple with the cost of aged care.3

Secondly, women generally have greater financial needs in retirement as they typically live longer than men, and retire earlier (for example, to care for elderly parents). The graph below demonstrates this trend. The Australian Bureau of Statistics (ABS) data shows 25% of men retired before the age of 55 compared to 46% of women.4

Thirdly, women are less likely to re-partner following a divorce or separation which means some also face the burden of higher household living expenses. This is being compounded by rising day-to-day costs like electricity and healthcare.

With little or no personal income or savings to draw on (see graph below), some women can face the prospect of poverty in retirement. Taken together, it’s not hard to see why the rate of older homeless women is increasing.

The ABS study found 74% of retired men aged over 45 years had contributed to a superannuation scheme compared to 58% of women. Of those who had contributed, men were more likely to have contributed for 20 years or more (59%) than women (38%).

It’s a confronting reality. Off the back of already lower superannuation balances (i.e. as a result of factors that include the gender pay gap and lower lifetime labour force participation), emerging challenges mean women are more likely to face inadequate outcomes in retirement.

A positive retirement framework for women

Having a direct conversation with women is an important place to start. Some women are well aware of their financial situation and the implications for the future, while others are not. It’s important to recognise and understand how each person is thinking and feeling about retirement as this will affect their behaviour and willingness to engage.

The aim isn’t to scare but to set in place strategies that will make a difference in the long run. For example, making the most of voluntary super contributions for pre-retirees, identifying measures that will protect the interests of dependent partners in older couples and encouraging intra-household transparency of super and banking accounts along with investments held.

Many women will face retirement with enough savings but these numbers can, and should be, much higher. It will be interesting to see what recommendations come out of the Treasury Review in relation to creating more equity in the system for women. In the meantime, as advisers, you are well placed to do something about it.

 

1. ABS 2012
2. Ross Clare 2017, ASFA https://www.superannuation.asn.au/ArticleDocuments/359/1710_Superannuation_account_balances_by_age_and_gender.pdf.aspx?Embed=Y
3. Deloitte Access Economics, 2015.
4. ABS 6238.0 – Retirement and Retirement Intentions, Australia, July 2016 to June 2017

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