I respond to 'super splitting' mythsMar 30, 2023
In this week's Video I talk about the many DMs and emails I've received when it comes to super splitting with your partner if you have a career break. I talk about the 3 common arguments provided against super splitting by partners, bust some myths and provide my thoughts around why these arguments are simply invalid.
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Hey and welcome to Mel's Money Musings.
Today I want to have a chat as a result of the many DMs and emails I've received off the back of a post that I did on International Women's Day around the cost of childcare and the often forgotten cost often to women, which is the compounding effect of the unpaid super. And I followed that up with 'this is how much you need to be contributing' in your twenties, thirties, forties, fifties, if you want to catch up an average career break and the compounding super. But I also went on to add answer questions and to talk about some ways, particularly in Australia, that you can catch up. And that includes things like making an after tax contribution of up to a thousand dollars if you are earning very little income during your career break year and maybe receiving the co-contribution from the government. Or maybe having your partner make a contribution if they're on a higher tax bracket and getting the tax, a tax rebate for that.
Or, and I didn't realise this was a controversial suggestion at the time, super splitting, in which case you could say to your partner, well, seeing is by me choosing not to work, it's enabling you to work. How about we just split the contributions that you would your employer is making for you for that year. And that way it's equitable. I'm, I'm enabling you to work. We are making the decision for me to stay at home. So let's split the super.
And I cannot believe the number of DMs and emails that I've received as a result of pushback from male partners saying, oh no, no, no, we don't need to be super splitting.
So what I want to do today is just to talk about the myths that have been brought up as arguments from women saying he said this. Is that true or is that something that I should continue to ask for?
So the three things that I want to say to it is, or the three arguments, one is that often what is said is, well, if we were to split up, you are going to get that super anyway.
And I want to say that not necessarily. Way too often when couples split, I see, you know, lawyers get involved and a lot of that's taken up with fees. But also I see what happens a lot is that one of the parties, often the woman goes, you know what? I just can't be bothered, just take it. In which case you may inherently miss out on that super or there's a split that happens with, maybe you get the home and they get the super and that's how it's worked out. And you're missing out. Yes, you might have one asset, but you're missing out on the ability to have an asset that is actually bringing in an income.
The other thing that is argued is, well it's all ours anyway. In which case, well if it's all ours anyway, split it with me. I mean that's like saying, well our money is all ours when I'm working, but I'm putting it in a bank account that's just in my name. And if I think you need some at some point in the future, I'll just let you have it. I mean, that's not how partnerships, true partnership, works. What happens, it goes into a joint account and you will often happens is it goes into a joint account and you both have access to that or you both are making decisions around that wage, hopefully in a true partnership. And yes, you'll have your own bank accounts. I think that's really important. But there'll be joint decisions being made during the time when one's not working about the one wage of the one that is working. What usually doesn't happen, except in cases where it's problematic, is it goes into his bank account and then he decides how it should be spent and if you'll get any. And essentially that's what's happening with just that super going into his super account. He's saying, well, of course it's for us. I'm not letting it be transferred to you, but of course it's for us. But, you know, if it comes to it down the track, of course you can access it. Well, give it to me now buddy. Let's just be equitable now if that's what we truly are all about.
But the third thing, and this has come up quite a few times, is, and this is where financial literacy is really low, and often I think we are either, I'm hoping in these occasions that neither party truly understands compound interest and how it works and that one party's not being Machiavellian.
But what will often happen is that the wife will come to me or the female partner (cause this has almost always heterosexual couples) and say, and this has happened via DM or email in the last few weeks and say, so we've run the numbers or he has said that it's not worth giving you that money because compounding interest means it's far better being compounded with him. And I go, huh. So I ran the numbers just to prove to you that this is not true. So just say a husband has $300,000 in super and that compounds over 20 years. That means he's going to have $1.478 million in 20 years time. Let's say that he went, you know what, I'm just going to split it. I'm going to keep $200k, put $100k in your account for you. If they generate the same return over the next 20 years, guess what the amounts are at the end of 20 years? His will have almost a million. Hers will have almost $500,000. The end result is $1.478. So compounding happens naturally anyway. It doesn't matter that it has been split. So the notion that oh, it's better for it all to be together and to compound that way cause it will earn more, It's just rubbish.
I want to argue that it's better to have diversification. It's better to have him doing something over here that maybe is a little bit how it fits his risk profile. You doing something here and you can bring up the fact that women in longitudinal studies, including a Warwick Business School studies have shown that yes, both men and women will beat the index. But women outperform men when it comes to share investing. So, you know, we really want money to be in the hands of the right person, the one that's going to probably do the best for long-term investing. It's kind of a nil argument.
So they're the three usual reasons that I'm given as to why we shouldn't split super. And I hope you can see that all of them kind of a rubbish. So often I think it is, it's not Machiavellian and it is simply from really not acknowledging and understanding the issues behind it.
And I think when you're able to sit down and have a reasonable conversation and to give those examples to say, Hey, this is why that's actually not true and not correct, then I think that's where you can come to that point and go, you know what? Super splitting at the time of having that career break just simply is fair.
If you've got questions or if something didn't make sense, just shoot an email back and I'm super happy to answer.