14 April, 2015 - 01:58 PM GMT

Close the Gap - a compelling case for improving women’s savings

Over the last 20 years there have been numerous research reports which show that over the course of a working life, women can expect to earn about 17.5% less than their male peers. There are lots of reasons for this and unfortunately not many quick solutions. One of the clear outcomes however is that women end up with significantly lower levels of retirement assets as a result.

Surprisingly one of the potential quick wins to address this superannuation shortfall may not be increasing the quantum of contribution by women but by bringing forward their timing. 

Start early to get the most from compounding.

Consider this: if you contribute $2k per annum between ages 18-25 you will grow your retirement savings by more than if you make $2k per annum of contributions between age 26-65 i.e. $14k of contributions grows by more than $84k of contributions by just making them just 7 years earlier. 

Talk to women and many will tell you that they had more discretionary income in their 20s than in their 40s and 50s. By middle age many women have moved to part-time or lower paid work, have mortgages, childcare, school fees and the habit of putting the financial needs of others before their own. Capturing the opportunities of the relative financial freedom in the early years of adulthood might be the key to creating genuine financial independence in later life.

But how do you encourage an 18 year old to make plans for when they are 60? When we talk about the power of compounding with older clients they invariably wish someone had told them about it earlier. But in reality even if they had known, would they have acted? My mother pushed for me to attend piano lessons as a child citing all the long term benefits and I obstinately refused. I look back now and wish I had taken her advice.

How parents can help

Maybe as parents we need to do more than encourage. Perhaps milestone birthdays like 18 and 21 should include a contribution to super – especially for our daughters.

But what about one step further. If you have a young adult at home living rent free, think about charging them board of at least $40 a week (possibly the best rent they can get anywhere!). 

If you can afford it, contribute these amounts to super as non-concessional contributions for your child. It gives a young adult a more realistic picture of the cost of real life and depending on what they earn, they may be entitled to a co-contribution from the government to augment their superannuation savings. It also means that by the time they leave home, often not until 25-30 years, they have made the vital early years of contributions and can ‘retire’ from thinking about the long term and let time and compounding to do the work for them.

It might be the best gift you can give to your kids and a practical, achievable way to start ‘closing the gap’.

Have a look at our website – for more ideas about how to grow financial independence.

Catherine Robson and Affinity Private are representatives of and offer our services on behalf of Apogee Financial Planning Limited  ABN 28 056 426 932 Australian Financial Services & Credit Licence No: 230689. Registered Office 105–153 Miller Street North Sydney NSW 2060. 

Catherine Robson and Affinity Private have not taken into account any particular persons objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision.  The information in this document reflects our understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way.