One of the quickest ways to address the superannuation shortfall that affects so many Australian women lies in encouraging younger generations to start making additional contributions as soon as they start working, and preferrably well before having children.
Consider this: because of the magic of compounding, (where new earnings are generated from previous earnings) is that if you contribute an extra $2k per annum (from after tax money) between ages 18-25 you will grow your retirement savings by significantly more, than if you contribute the same amount between ages of 26-65 years.
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.
You only need to talk to women and many will tell you that they had more discretionary income in their 20’s than in their 40’s and 50’s.
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.
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 and despite all the long term benefits she cited, I obstinately refused.
I look back now and wish I had taken her advice.
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 going 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, 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’.
