Women and the retirement challenge

02 Dec 2013

By Sally Huynh

How often do you stop and think about your future financial needs:

  • How much should you save for retirement? 
  • Is it enough? 
  • Will you outlive your assets?
  • When can you retire or slow down? ​ 

There is no doubt these questions are daunting and the answers can be downright challenging.

More and more women are becoming successful professionals yet few are able to answer the above questions with confidence. The fact is women tend to spend more time out of the workforce than men due to child raising and other family responsibilities, and this in turn translates into reduced retirement savings. Another consideration is that not only are people living longer but on average women can expect to live longer than men and this longevity trend magnifies the need for women to properly prepare for life in retirement.

So how much is enough?

According to The Association of Superannuation Funds of Australia (ASFA), a single person wanting a comfortable retirement will need $41,830 per year, or a lump sum of $430,000 (ASFA Retirement Standard, September 2013). However, the realisation of this lump sum is far from reality with the current average superannuation account balance for women at retirement age being only $112,000.

If you're like most people, simply having a 'comfortable' lifestyle may not be quite what you have in mind for your retirement years. Many people often hope for a 'very comfortable' life or perhaps even a 'lavish' lifestyle well beyond what $41,000 per year can provide. The general rule when planning for retirement is if you want a similar lifestyle to the one you're enjoying during your working life, you need a minimum of 70% of your current work income. That means if you're earning $100,000 now you'll need a minimum of $70,000 in retirement.

Here are some more figures to consider: to achieve $70,000 per year in retirement from age 65 with the money to last until age 100 and no reliance on the Government age pension, you would need about $1.4 million based on a 7% annual return, or $2.2 million under a more conservative investment strategy producing 5% per annum. If we take into consideration the Government age pension, a single person would still require about the same amount because the Government pension doesn't come into effect until many years down the track due to the asset level and so the added benefit is minimal.

If you're a couple needing the same level of income, the required capital would be lower at about $1.1 million under the 7% return per annum and $1.5 million under the conservative investment scenario (5% per annum). This is because the Government age pension is more generous under the couple scenario.

Time to take control

If you're a woman, there is a way to tackle the retirement challenge. In fact, it is actually no different than what everyone needs to do – take responsibility, take control and do it sooner rather than later.

One of the best ways to assert some control is by developing a comprehensive financial plan, or what I often refer to as your 'financial map', which focuses on building an adequate retirement nest egg. That way when your last pay cheque is collected, you can achieve a steady income stream for life and put yourself in the best position to achieve true financial independence.

To learn more about Sally, view her online profile.

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