Uncensored Money Season Three: Superannuation – The Forgotten Cost of a Career Break 

Melissa Browne: Ex-Accountant, Ex-Financial Advisor, Ex-Working Till I Drop, Now Serial Entrepreneur & Author, Financial Wellness Advocate, Living a Life by Design | 16/03/2022

Show Notes

In the third episode of Season 3, on International Women’s Day Mel talks about an important yet often overlooked cost of a career break; the impact on women’s superannuation.  

Whether it’s a career break while you have kids, start a business, travel, take a sabbatical or commit to further study, Mel runs the numbers on how much super you could be missing out on and shares strategies you can use to make sure the impact of your career break on your super is minimised. 

During this episode, Mel also mentions a calculator you can use to determine the impact of your career break on your superannuation: https://www.melissabrowne.com.au/forgottencostofcareerbreak  

If you know you need more help with your finances make sure you sign up to the waitlist to be first to know when we launch the next round of the My Financial Adulting Plan.

If you're not already, come play over at insta at MelBrowne.Money and make sure you are signed up to Mel's Money Musings and Monday Money Moments (yep, we love us some alliteration) for more tips, tricks and ideas on how to best work with your money.

Finally, if you love this episode please make sure you subscribe and leave us a review.

Transcript

Mel: Welcome to Season three of Uncensored Money, where sometimes I'll be having chance with Lawsie. Sometimes with the bald sexy man, and sometimes with you.

And today I'm recording this on International Women's Day. And the theme of this year, as we all know by now, is Breaking The Bias.

And one of the things that I see far too often when it comes to bias is the financial bias that we carry that often we're not even aware of. And certainly where I am in Australia, there is a really deep bias around the places we have in a household.
Around who is going to be the primary carer. I mean, in Australia, particularly, and I think this is common for men, much of the Western world, our systems, whether it's childcare, whether it's paid maternity leave, whether it's leave full stop, all those deep-rooted presumptions are steeped in this notion that a woman should be the primary carer.

And I think we've made leaps and bounds in a lot of things when it comes to gender-based stereotypes. However, this is one that I think is really very stuck and I used to see it often when I was a financial planner. So I would have a couple come into my office because either they're thinking about having a child or she's pregnant and usually the first question, or one of the very first comments after I've dug into why they're there is, and it was usually said almost verbatim. Yes. Well, we looked at her having going back to work, but when you compare the percentage of childcare to her wage, it's really not worth it.

For many people, you listen to that and go, oh yeah, I know it's not worth it right?

Others of you hopefully will listen and go really? A percentage of her wage? And that was the question that I always put back. Oh, really fascinating. I didn't realise she was the only one in this, so. Now that you've worked it out as a percentage of her wage, how about we work it out as a percentage of both wages?

Because let's be honest, you're both having this child. And when they did that, often the percentage was obviously a whole lot less and it was a really different decision then. Because in the light of new evidence, which really is the same evidence. Right. But it's just reframed. It just meant that. Huh. Okay. Then suddenly it is worth it. But one of the things that I found couples simply didn't consider, and that is the cost of lost super when someone doesn't work for a while and we might consider this just for the period of time that we are working. So just say, and you might be listening to this going, ugh, this is so irrelevant for me either I don't want kids or I'm past having kids, swap out stopping to have kids to just simply having a career break. So maybe it is that you've chosen to start a business and you're thinking, you know what? I'm not gonna pay super for a few years. It's not really gonna matter. And then I'll get round to it.

Or maybe I'm just gonna travel for a while, or maybe I'm gonna have a sabbatical or maybe I'm gonna go do some more study, whatever your career break is. I want you to be listening with that filter on if childcare isn't relevant for.

So after I've reminded them that it's not just a percentage of her wage and to consider super, they might go, oh yeah. But, you know, that's still only, if we look at an average wage in Australia of 70 grand, the super on that over three years, even less tax, is probably around about $24,000. So they go even if we looked at that, it's not worth it. It's still such a large percentage.
But here's the thing that has been forgotten.

And whether you are looking to stop and have kids, whether you are looking to start a business, whether you're looking to have further study or a sabbatical or stop and travel for a few years, this is the insidious thing that we have forgotten when it comes to this and women particularly ending up with far less super than their male counterparts.

And that is the compound effect of that lost super. Cause at $24,000 you might think, oh yeah. Okay. I'm happy to forgo that, you know, in the grand scheme of things, that's not that much. But an average super fund over 10 years has made an average of 8.5%. And really, if we even look back 50 or a hundred years, 8.5% is actually fairly reasonable as to the returns that you could expect from your share investment or super.

So if we considered that someone had say, 24 and a half thousand in lost super during those four years of having that career break. Just say they had that 8.5% return that they would've received. And let's say they're not gonna retire for another 30 years, or they're not intending to access that super for 30 years.

The amount that they are forgoing is not $24,000. It's actually a staggering $282,000.

Let me say that again. The amount that you are forgoing is $282,000.

That for me is a wake-up call to not simply look at childcare as a percentage of your wage, because just say the childcare costs you 500 bucks a week over four years for one child, then that's a hundred grand. The net wages that you might have received if you're in an average wage for that four years is 200 grand. So already you're in front. But $280,000 can buy a whole lot of retirement. And the reason I wanted to have this conversation on this day is that there is a whole lot of bias and presumption when it comes to the role of women in society.

And there are a lot of arguments that are used that are hard to sometimes step around. And they're hard to challenge when our financial literacy is low and when we're also not looking at all the facts. So what I want you to know is if you wanna choose to have a sabbatical, if you wanna choose to have time off and be the provider to look after your child, if you wanna choose to start a business, I'm not saying that any of those things are wrong.

All I'm saying is beyond the true cost of those decisions, rather than someone simply saying to you, ah, it's not much. And the percentage that you are that childcare's costing you really doesn't mean is not worth it. Or it doesn't matter if I don't pay super for myself in business, I'm just doing this for a little bit of extra pocket money, it's time to reframe what we think about women and super, because this is a discussion where there is a super gap that exists between men and women. And a big part of that super gap is because of the career breaks that women have. And I see this happening. It's exactly that argument that I put forward at the beginning of this episode around, but it's a percentage of your wage. But then what I see is that women either go back to part-time work. Or they start their own business so that they can spend more time with their kids. And because they're potentially a nurturer and because they're putting the needs of their family before their own, when they start a business, they're not continuing to contribute to super.

And my challenge to you is if you are going to start a business, if you're gonna have a career break, my challenge to you is to continue to contribute to super as if you are not having a career break. So that's my challenge to you this episode, if you're having a career break to contribute to super as if you are not having a career break, because you are not potentially gonna miss that $20,000 over four years. That seven odd thousand dollars a year. You might not miss that. However, I can absofreakinglutely assure you that you will miss $282,000 in retirement.

And what we know is that women over 55 are at the greatest at risk of homelessness. What we know is that there are currently 450,000 women in their forties in Australia that are at risk of homelessness.

What we saw during the pandemic is a tsunami of couples breaking up and women particularly going, oh, wow. I now need to suddenly become financially literate and deal with something that I'd abdicated financially to my partner all this time.
And I know that's happening cause I see it over and over again. It's from the DMs, the hundreds of DMs that I receive every month from women who are scared and who are vulnerable and don't know what to do. It's from the hundreds of women that join my courses. There are over a thousand women that are inside my course, but hundreds of them are from the situations that I just mentioned.

And so my challenge to you, this International Women's Day, whenever you are listening to this is part of breaking the bias, is starting to break these unconscious assumptions, starting to break these presumptions as to, oh, you know, of course, you won't go back. It's not worth it.

So what we've put in the show notes for today is a calculator and it doesn't matter. As I said, if it's a childcare break, a business break, sabbatical or other. What it allows you to do is yes, you can compare the cost of childcare to your super and your career break that you are forgone, but it'll actually work out for the wage you are now for the amount of time you're intending to have to not work. It'll work out what the super is that you've forgone.

And what I want you to do with that is take it to your partner if you're considering a career break and saying, so I know we agreed that the percentage wasn't worth it, but there is now new evidence that I wanna present. And we need to have a new conversation about this.

As I said, it doesn't matter. If this is something you are choosing to do, perfect. But again, I want you to choose it, knowing all the facts and even if you choose it. Even if you say this is something that I wanna prioritise, and it's the most important thing, then it's still having a conversation with your partner to say, how can we make sure that I'm still contributing to my super during this time?

There are rebates. If your partner's a high-income earner, there are rebates he can receive at tax time. If he contributes to your super or you might choose as a couple to even contribute half of what you normally would've contributed to your super, just so that you are continuing to be moved along. And just so you can start to close that gap. Cause it's a lot harder to catch up from.

And if you're a young woman, and if you suspect that you may want a career break during which time you may suspect that you may not be able to afford to contribute to super, then you might consider at a really early age to start to contribute to super. To contribute just a teeny bit extra. Cause trust me, when I say your superpower is time. It's that compound nature. And even you just putting in an extra 20 bucks of pay could really start to make up for that later on.

I hope you've enjoyed this very short episode. I hope that it's made you think. I hope that it's challenged, perhaps the bias and the unconscious assumptions that you've been operating under.

If you wanna know more, then download in the show notes the calculator that I've mentioned and apply it to your own situation. And then most importantly, I want you to take action.

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