International Women’s Day is to recognise the achievements of all women. However, it is important that we continue to look forward and improve future outcomes of women.

This was the theme and goal for the panel discussion at Morningstar’s International Women’s Day event in Sydney. Given the disparity in retirement savings and outcomes between genders we focused on using superannuation as a tool to improve the lives of women. I was joined by two esteemed financial services professionals – Rachel White, Head of Adviser Services at Vanguard, and Dominique Bergel-Grant, Founder and Financial Adviser at Leapfrog Life.

Financial independence is similar to the concept of ‘success’. It is deeply personal to us as it is shaped by our experiences and circumstances. The term has come to be a blanket statement that declares you are not reliant on anybody or anything – such as wages or government support, to be able to financially support yourself. This usually involves having a large capital base that can generate passive income. This is not a reality for many of us and is less likely for women.

A different lens is understanding what we can achieve within our circumstances that can provide us with our definition of financial independence.

This may mean secure housing, a comfortable retirement, or being able to take care of loved ones. It may be the ability to leave an unhealthy situation with an employer or the freedom to leave an abusive relationship.

For women, there are situations that we are statistically more likely to experience that challenge our ability to gain financial independence. There are ways to harness superannuation to combat this.

Career breaks

Rachel White joined us with the fresh memory of maternity leave after returning to work late last year. She is currently six months pregnant and planninglooking forward to maternity leave with for her second child. She has adequately prepared for the missed retirement savings and stressed the importance of doing so. Vanguard’s How Australia Retires report provides sobering data on the impact of career breaks.

Estimated impact of career break on superannuation balance at retirement

This practical example doesn’t just stop at career breaks for child-rearing responsibilities. It can account for other care scenarios, such as for elderly parents. Situations like this do not have as much structural support. This means that it is particularly important to create a plan that accounts for the impact of missed retirement savings and the potential for unpaid leave.

Relationship breakdowns

Dominique Bergel-Grant specialises in helping clients through life transitions like divorce. Her role is to help her clients undergo the transition with the least possible financial harm to all parties. She shares that often women who are experiencing divorce are extremely fearful about their finances. In many cases they have little previous oversight over their superannuation and joint savings and assets. , their savings (if any) and their assets. She stresses the importance of a Plan B. None of us consider the impact of relationship breakdowns until they happen. When we get married, the thought of divorce is always out of mind until it happens. Regardless of how happy your relationship is, it is important to take responsibility for your future self.

Bergel-Grant gets excited talking about superannuation. She ensures that her clients know that it is not a product – it is a piece of tax legislation that has extremely favourable tax rates that can contribute towards a comfortable retirement.

She also mentions the Moneysmart website and the calculators available be able to project the impact of different retirement saving scenarios.

She stresses the impact of the transition required after divorce. It means new budgets, deciding what to do with your share of assets, and how to move forward.

Bergel-Grant’sbelieves the best preparation for any eventuality is to continue working on your financial fitness. She told the audience to treat financial education the same as physical health. Building confidence and being engaged can result in a much easier financial transition during a very difficult time.

Ill health

Exact future healthcare costs are hard to define. This is why planning is crucial. The planning must take into account the disparity in women’s wages, more frequent and longer career breaks and lower current superannuation balances. When combined with a longer lifespan and more challenging health outcomes involving a higher likelihood of chronic illness many women face a lower quality of life in retirement. Teh answer is taking advantage of the lower tax rates of superannuation to invest and self-insure for our future selves.

Research from the National Centre for Epidemiology and Population health states that “individuals with multiple chronic illnesses can spend up to six times the amount spent by those without a chronic illness. Those on lower incomes are fifteen times more likely than those on higher incomes to incur catastrophic health care costs (>10% of household income).”

Another study from the University of Technology Sydney surveyed 800 women with osteoarthritis. The study showed that on average, these women aged between 53 and 94 had more than seven specialist care appointments per year for a single condition. After Medicare rebates, $673 was required to cover the appointments, therapies and medication.
There’s over one million Australians that have multiple chronic conditions that often lead to a heavier financial burden. The Grattan Institute found that they pay more than $1,000 each year on out-of-pocket expenses. The same study found that over the past decade, out of pocket costs have increased by 50%.

Some chronic illnesses are more expensive than others. For example, Alzheimer’s would require full time care for developed cases.

Bergel-Grant says that she takes this into account with her female clients, particularly with the approach taken when organising insurance for her female clients. For example, she may take on less for life insurance while increasing trauma insurance, Total and Permanent Disability (TPD) and Income Protection. The insured amount may be up to three times as much as a man in a similar role, age and health parameters.

Understanding the risk factors, including longevity risk and family history are crucial to knowing the level of insurance needed.

Ultimately, if insurance premiums become exorbitant for her clients, Bergel-Grant will advise a switch to self-insurance. A key part of this decision is understanding alternative plans if a variety of serious scenarios play out. Examples of recommendations she makes are downsizing homes and removing children from private schools. She used the analogy of the instructions received on a plane to put on your own oxygen mask before helping your children. Over the long-term the best way to help children is not having to rely on them in the future for financial support. These are tough conversations, but pre-emptively having them with yourself or your financial adviser can help if the worst case scenario comes to fruition.

Vanguard’s 'How Australia Retires' report

The magnitude of the issues that all of us need to address was clear as Rachel White shared sobering statistics from Vanguard’s latest ‘How Australia Retires’ report.

  • Men are twice as likely to be confident and optimistic about their decision-making abilities and retirement plans in contrast to females (50% males vs 23% females)
  • Women are more than twice as likely to feel not at all confident in their understanding of Superannuation compared to men (20% female vs 8% male)
  • A third of younger women have never initiated contact with their super fund
  • 46% of women said they “had no plan” for retirement, versus 73% of males stating they have a “general”, “good” or “exact plan”
  • 73% of pre-retired females reported personal income under $75,000 whereas almost 70% of pre-retired men reported earnings in the region of $50,000 – $200,000

She also shared what can help improve the above statistics:

  • More women think that that ongoing guidance (30%) and an age-appropriate plan from their super fund (27%) would be helpful in working towards their desired retirement lifestyle
  • 38% of women who make regular contributions are confident they can fund the lifestyle they want in retirement, versus only 19% among those women that don’t
  • 44% of advised clients feel extremely confident about retirement vs only 25% of non-advised
  • Vanguard Research (Adviser’s Alpha) shows financial advice can add 3% in net returns to an investor’s portfolio plus emotional and time value

Conversations about practical ways to improve your financial outcomes

It is important that we continue to discuss practical steps that women can take to improve financial security. A reminder of the consequences of the status quo is the fact that the largest growing subpopulations of Australian homeless are elderly women. Superannuation is an effective tool that everyone can use to improve their outcomes and should be harnessed to create a comfortable retirement.

The full panel discussion can be viewed here.


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