Keep the nest egg warm
A career break can hit retirement savings but there are ways to get back on track
Having kids can be an expensive business. As well as the obvious costs such as feeding, clothing and educating your children, you need to consider the impact it may have on your long-term wealth, especially if you or your partner take parental leave from work for an extended period.
Your super can really suffer. Research by Rest Industry Super found that women are taking a $159,590 hit to their retirement savings due to career breaks.
Rest predicts women who have taken a break will retire with an average superannuation balance of $283,141 less than their male counterparts because they don’t add to the super while on leave and because they have lower average earnings.
If you are taking leave while having kids – whether three months, a year or even more – there are a few things you can do to keep your super growing:
Talk to your boss. Consider asking your employer if they would still make super guarantee payments while you’re on parental leave. NGS Super and HSBC are two employers already doing this, so others may follow suit.
Keep topping up your super while you’re on parental leave – even if it’s $10 or $20 a week. Just 16% of women made a superannuation contribution during their break, according to Rest.
By making extra contributions you might even be eligible for the government’s cocontribution. If things are really tight, at the very least try to find $1000 to add to your super to take advantage of the federal government’s co-contribution of up to $500. You need to earn less than $37,697 and deposit $1000 to get the maximum co-contribution of $500. If you really can’t manage paying extra, then make sure you do make extra payments when you return to work.
Get your spouse to top up your super and you’ll both benefit. If you earn less than $37,000, your spouse can contribute up to $3000 a year into your account and in return they get a tax offset of 18% (or up to $540). They might be eligible for a partial offset if you earn less than $40,000. Longer term there’s super splitting, where your spouse can split up to 85% of their before-tax contributions with you.
Consolidate your funds. If you have several super accounts, think about rolling them over into one account. You will pay one set of fees and this can help you build your balance in the long run. Just make sure you do your research about the fund you choose and the option your money is invested in. Also check how it may affect your insurance.