The Forgotten Cost of a Career Break

Mar 09, 2023

In this week's Video I talk about our unconscious bias as well as the forgotten cost of a career - not just the super that would have been paid to us but the compounding effect of that super. 

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And welcome to Mel's Money Musings.

Here I want to continue the conversation that I had on Insta on International Women's Day around women, childcare and super.

And to set the scene when I was a financial advisor, I would have so many conversations with heterosexual couples. I want to say that it was probably one or two a week, where when I was doing a bit of a fact find with them, invariably they would say that they made the decision for the female partner to stay at home because childcare wasn't worth it because it would take up too much of a percentage of her wage. It was always their words. At which point I would say to them, that's curious. I thought it should be a percentage of both of your wages. At which point they'd kind of look at each other a little bit uncomfortably and almost always say, 'oh my gosh, we never thought about that'.

But what they often also didn't think about was the superannuation that wasn't paid on that wage. That wasn't taken into account. And absofreakinglutely they did not take into account the compounding effect of that superannuation. And I did the maths again recently where if you have two kids and take seven years out and you are in an average wage, your compounded effect of that lost super over that seven years is around 70 grand, which is a lot, right?

But if we keep compounding that for the next 30 years, and this is the power of compounding returns at 8%, which is a very conservative rate for superannuation invested over the long term, that $70,000 would turn into, wait for it, almost $700,000. I feel like I should be stroking a white cat as I say that. And that is the forgotten cost of a career break.

And I'm not just talking about stopping to have a baby. I'm also talking about stopping and starting a business or having a sabbatical or going and doing further study. And the reason I wanted to highlight this is a), it's a bias that we don't realise that we're not including. But also it's part of the reason why women at 55 at most at risk of homelessness because we don't have this superannuation to fall back on.

So if you are someone that is single and young and you're thinking of having a child in the future, this might be something where you start thinking about maybe starting to contribute a little extra to super now. If you're a couple thinking of having a child, again, you might decide as a couple to start contributing a little extra to the wife's or the female partner's super so that there's a bit of a catch up. During the career break again, you might decide to do that. You might in Australia, there's things like the co-contribution, the superannuation rebates, that are available to help you catch that up.

And if you've gone past that moment where you are now, now working again, it might be that you as a couple again say, Hey, now that we are both earning again, how about we make a plan to start to catch that back up?

I've got a free worksheet where it will help you calculate the probably eye watering amount of lost super and just remember that that lost super was always there. You just didn't realise that that was the case. Because most importantly in that worksheet, I'm also going to help you figure out a plan to catch up, even if not all of it, but at least start to catch that up if that's something that you choose to do.

My big thing is knowledge. Knowledge is power. And more than that, understanding, understanding the consequence of having career breaks, cause I'm all about choice. If you're choosing to stay home, I want you to have that choice. You're choosing to start businesses, which women are doing faster than ever before, I want you to have that choice. But I want you to understand the consequence of not paying super during that choice. And then starting to think about what could you do so that it's not an either/or, it's an and.

If you've got questions as always, hit reply. But in the meantime, go and have a play with that worksheet, share it with your partner, and start to work out a plan for how you can catch up.

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