It pays to know where you stand financially if worst comes to worst
It cost Paul McCartney 58 million dollars when his marriage to Heather Mills ended, and Steven Spielberg handed over 100 million dollars after splitting with Amy Irving after 34 months of marriage. But the hard reality for most Australian women is that the hangover from a divorce can be devastating and long lasting.
With statistics showing that one in three Australian marriages end in divorce, many of us face the messy business of dividing assets and reviewing our financial future after the breakdown of a relationship.
Health Super expert, Carol McKelson-Timmins says: "While Heather Mills may not have to worry financially following her divorce, unfortunately, the scary fact is that the majority of Australian women will be hit harder by divorce from a financial point of view than men."
"What we are finding is that often a separation or divorce can be a trigger point for many women to review their retirement nest egg situation," Carol says.
"And the financial outlook for many Australian women after divorce is not all rosy," she says.
The bad news is that women are ending up on average with half of what men's super balances are at retirement. The Association of Superannuation Funds Association (ASFA) figures show that the average retirement payout for women is only $73,000 compared with $155,000 for men.^
The picture is even worse for divorced women who have to rely on their own resources in retirement. ASFA estimates that recently divorced women currently have around $40,000 in super compared to around $145,000 for men.^
"Often this situation is driven by women taking time out of the workforce to have babies and women earning less than their male counterparts," Carol says.
Facts and figures
Women divorce on average somewhere between the ages of 35 to 39, compared to men who file for divorce on average around the ages of 40 and 44.*
Married people are twice as likely to have children than people in de-facto relationships.**
The nuts and bolts of divorce on super
Carol says that there are many things that women can do to ensure that they have adequate superannuation savings.
1. Be prepared
"While you should not go through life expecting the worst, it will pay to be prepared," says Carol.
"One of the best approaches is to ensure that you are proactive in your approach to your finances no matter what stage of life you are in."
2. Make your salary work harder while you're earning
With many women taking time out of the workforce either completely or part-time once they have children, the result of this is an impact on your nest egg.
One of the best things you can do is to salary sacrifice to earn more for your retirement.
"If you make contributions from your pre-tax salary you can reduce the amount of tax you pay on your salary and add any savings you make to your super contribution and boost your savings," Carol says.
3. Start early
Statistics show that on average, you need around $50,000 a year to live comfortably and with the average woman's life expectancy now 85, you will need more than a million dollars in super to achieve this.
"This is where a bit of early thinking can make a world of difference," Carol says. "Really think about what you can contribute in the short and long term to your super fund and make voluntary contributions. It really can make a difference to the health of your nest egg."
Due to the process of compounding, the more contributions you make earlier in life, the more you will accumulate over time.
"Compounding is where you earn money on the total balance of your account. That means your savings build on their self - earnings are added to earnings. This multiplying effect increases at a faster and faster rate over time. It's what Albert Einstein called the 'most powerful force in the universe'."
Case study
Rachel, 50, has recently reduced to part-time work and now earns $30,000 a year. She makes a $1,000 non-concessional contribution each year until she retires at the age of 65 to qualify for the government co-contribution. This will increase Rachel's retirement savings by approximately $40,000 over a 15-year period.
If Rachel has started contributing $1,000 from age 30, her retirement savings would increase by approximately $100,000 over a 35-year period.
4. Take the freebies
There is good news for those who do make voluntary contributions. If you earn less than $61,920 a year and make voluntary contributions to your super, you may be eligible to receive co-contributions from the government of up to $1,000, Carol says.
5. Look at your stage of life
Review your super investment portfolio. "There may be better options depending on your age and stage of life," Carol says. "Work breaks and lower income levels mean that women need to make their superannuation work as hard as possible." By investing in more high risk options, returns are generally higher than those safer investments which provide a steady return.
Super Health Checklist
1. Estimate how much super you think you'll need to retire on. Your fund's web calculators may assist you to work this out
2. Roll your super into one account to avoid paying more than one set of account fees.
3. Start saving as early as you can to make the most of compound interest.
4. Find out if you can salary sacrifice part of your salary to boost your super savings and receive tax benefits.
5. Consider making voluntary contributions to boost your super. You may also be eligible for a government co-contribution of up to $1,000.
6. Review your investment mix for your stage of life. If you are younger, you might consider taking a more aggressive approach to your super investments.
* Flirting with Finance, Anneli Knight and Virginia Graham
^ ASFA website, 2009 figures.
For further information, please contact Health Super on 1800 331 719 8.30am - 6.00pm, or via Email
