Career breaks have a big impact on your ability to save for retirement. Whether you’re taking a break to have a baby or care for children, taking time to study or a grown up gap year, preparing for the break can save you stress now and thousands of dollars in retirement savings later.
Many people leave their job for a time to travel, volunteer, or most commonly for women, to have a baby and care for children. For women, the current average career break is about five or six years and this time away from work has a huge impact on a woman’s income, and ability to prepare for retirement. The impact is even greater if, when you do return to work, it’s on a casual, part-time, freelance or consulting basis.
› Women’s super balances ‘flatline’ between the ages of 38–42 and 43–47.
› The average super balance for men in the workforce aged 58–62 years is around $210,000, while the average balance for women is about $95,000.
› Only a small proportion of retired women live on annual incomes above $50,000 and more than half have annual incomes of less than $30,000.
› 77% of women rely on some form of age pension in retirement. *
* Source: Australian Institute of Superannuation Trustees, Super-Poor But Surviving: Experiences of Australian Women in Retirement, 2011
Getting your finances under control will give you peace of mind and allow you to relax and enjoy your break from work. When you leave work, the amount of money you have will drop and if you are having a baby, the way you spend money will change. While you’re still working, start your planning by doing a budget – or updating the budget you already have.
Generally, when you stop working your employer stops paying super for you. Even if you are not planning a break from work for some time, you should think about covering the future drop in super savings now. Work out what you are going to do about super well in advance of your departure from work, as it may take some time to get everything organised.
If you’re having a baby, there may be a time that you have paid parental leave from your employer (with employer super contributions), but you may have a period of unpaid leave with no super payments made, and if like many women you return to work part-time, the amount of super paid by your employer will be lower.
Here are some ways to keep your super on track when you’re not working:
1. Put a lump sum into your super before you stop work. (You could use all or part of the Baby Bonus, or any paid leave entitlements like long service leave.)
2. If you have a partner, they can help make sure your super does not fall behind by adding to your super for you. This can have tax benefits. They may be able to claim a rebate in their tax return – they can put in up to $3,000 to your super and get a tax rebate of 18% (up to $540) if you earn less than $13,800.
3. You can continue to add to your super yourself – using Bpay or direct debit directly from your account.
4. If you earn less than $48,516 per year, the government may add to the super you put in from your after-tax pay. This is called a co-contribution. For every dollar you contribute, the government puts in 50 cents, up to a maximum of $500.
Before you leave work, check on your insurance cover. You need to make sure you have insurance that will give your family security if you can no longer financially support them.
For example, when most AustralianSuper members go on parental leave or leave without pay, the insurance cover they have will continue for 13 months (as long as they are a member and there is enough money in the account). They don’t need to tell the fund that they are going on leave. Before the 13 months is up, AustralianSuper will write to them if their cover is going to stop and they can choose to continue their death and TPD cover (but not Income Protection cover as they’re not working).
Your partner could also consider taking out Income Protection insurance if they don’t already have it. If you’re taking a break from work, their regular income will become even more important. If you’re relying on a single income, it would be wise to protect it. You may also want to update your super and insurance beneficiaries.
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