A study by Australian consultancy group Rice Warner (commissioned by not-for-profit organisation Women in Super) has revealed that retirement savings for men aged between 30 and 60 are 42 per cent higher than for women of the same age. The gender gap was biggest for women in their late 30s and mid-40s.
Women are at a significant disadvantage when it comes to saving for their later years. Women historically earn less than men, retire earlier and live an average of three years longer, which means they have to stretch out retirement savings for longer.
It is estimated that in Australia, almost 40% of retired single women live in poverty. Older single women are one of the fastest growing components of people living in poverty.
Why is this?
Women usually take more time off work for childcare than men, creating less opportunities for career progression and promotion. This results in less income for women.
This issue does not only impact women’s lives. If women are earning less, it impacts total household income.
What can we do?
There needs to be policy changes. While we wait, there are a few things you can to do make sure your retirement looks bright. Kiwisaver is a good tool to make this happen.
Here are some ideas to consider:
Have a goal
The free calculators in Sorted.co.nz give you an idea of how much you are going to need and what you need to be contributing to get there.
Think carefully about your contribution rate
The minimum is 3% and your employer must also contribute another 3% if you are between 18 and 65 years old. If you keep working after you turn 65, you can keep paying into your KiwiSaver scheme, but contributions from the government and your employer to your account may stop. Some employers offer to match a higher contribution rate, so it pays to check you aren’t missing out. Retirement may seem like a long way off but money put in early has more time to accumulate interest and this compounding interest can have a big effect on how much you finish up with. If you consider going for the highest contribution rate you can afford right now, you can reduce it to 3% later on if you need to.
Make an active choice about your KiwiSaver. If you don’t, your contributions will be invested in a default investment fund. Think about your investment goals (including the length of time until you plan on withdrawing your KiwiSaver funds) and your attitude to risk, and choose a fund that will help you meet your objectives. This tool can help you.
Switching funds is very easy and there are many different products and providers to suit your priorities.
Check your PIR tax rate is correct
Your KiwiSaver investment returns are taxed according to your Prescribed Investor Rate (PIR). This is based on your annual taxable income. It’s important you get this rate right — if you pay more than you need to, the money won’t be refunded.
Make sure you’re getting your Member Tax Credit
The government will contribute 50c for every dollar you put in up to a maximum of $521.43. That’s over $500 of free money into your retirement fund each year. To get the full amount, you need to contribute at least $1042.86 per year, that’s just over $20 per week. If you’re earning $35,000 and contributing 3% then that will cover it. Women continuing to contribute to KiwiSaver while out of the workforce is one way to help close the gap.
What else can we do?
Pay a wage to the stay-at-home parent. Giving an economic value (even a small one) to the roles of raising children and running a home offers the ability to maintain autonomy over retirement savings. Of course, you need to have the financial means to do this but viewing the role as requiring a wage can shift priorities enough to make it happen.
Treat childcare as a joint expense between partners and consider how that could look for your family. Would the main income earner reducing hours to share childcare help? This could allow you to return to work full-time or complete further training to improve your career prospects.
Don’t rely on a partner’s savings and maintain greater autonomy by fully discussing the financial implications of taking time out of paid employment, be it for children, an extended holiday or any other reason. The time you take out has a long-term effect. Women can often view their personal needs as less important than their partners or their family, which can come at a financial cost. They should be considered equal.
There is still a way to go, but if we all work together we close the gap.