Career break to raise kids the biggest barrier to retirement savings

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Taking a career break to raise kids has been identified as the most significant barrier to having sufficient retirement savings, according to the latest MLC Quarterly Wealth Sentiment Survey.

In the June quarter, ‘career break to raise kids’ increased by a staggering 70 per cent to take out the top spot impacting sufficient savings in retirement. Previously, unemployment and major health issues have consistently ranked highest.

Women rated a career break as their number one barrier (rated 70 out of 100) to retirement savings while men ranked it third overall (54 out of 100), behind unemployment and major health issues.

The survey of more than 2,000 Australians also found the level of concern about financial sufficiency in retirement rose this quarter, with over half of participants saying they would not have enough to retire.

Women still worry more about superannuation and investments compared to men, and this concern has risen across all categories compared to the last three quarters. While the level of concern has increased, the survey also found around 25 per cent of women who are more than five years from retirement are not investing at all.

Additional findings:

  • More than one third (38 per cent) of participants expect a large financial shortfall at retirement, and less than five per cent think they will have more than enough to retire
  • Superannuation, debt repayment and cash remain the preferred investments, with higher income earners maintaining more diversified portfolios than lower income earners
  • There is less aversion towards fixed income investments, shares, investment property and balanced funds compared to previous quarters
  • Younger people (18 to 29) show the strongest interest in property investment.

Commenting on the findings, NAB Wealth General Manager of Client Management Lara Bourguignon said: “With just five per cent of Australians confident they will have enough money in retirement, the gap in retirement savings will be one of the biggest challenges facing our ageing population.”

“Families, and particularly women, concerned about the impact career breaks will have on their retirement savings should plan ahead as there are strategies that can minimise this financial shortfall. One of our financial advisers can assist in developing a plan to increase confidence and security around family finances, so they can enjoy this exciting life stage.

“Pleasingly, this quarter we’ve seen a small increase in people investing in super as the benefits of taking control of your finances slowly start to resonate.”

MLC’s Save Retirement campaign, launched in March this year, aims to educate and encourage Australians to take action on their retirement. For more information visit saveretirement.com.au.

About the MLC Quarterly Australian Wealth Sentiment Survey
The MLC Quarterly Australian Wealth Sentiment Survey interviews more than 2000 people each quarter. It aims to assess the investment environment by asking questions related to current financial situation, investment intentions, level of concern related to superannuation and other investments, change in life insurance, and distance to retirement and investment strategy. The Survey was conducted 14 May – 11 June 2014.

Tips for women saving for retirement:

Maximise pre-tax contributions during higher income periods
Think about making additional contributions from your pre-tax salary or business income before and after any work breaks or periods of part-time employment. These contributions are taxed at a maximum rate of 15 per cent, not your marginal rate. So they are more tax-effective when your income is higher. You may be surprised at how little it takes to make up for your time out of the workforce.

Consider other strategies during lower income periods
If you earn less than $49,489 pa and at least 10 per cent comes from an employer or business activities, you may be eligible for a government co-contribution if you make personal after-tax super contributions. To receive the maximum co-contribution of $500 a year, you will need to contribute $1,000 and earn less than $34,489. Additionally, while you are not working or during periods when you earn less than $13,800 per annum, your spouse may want to contribute into your super account. By doing this, you could grow your super and your spouse could also be eligible for a tax offset of up to $540.

Read more about how NAB helps parents take time off to raise children.

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