Wealth Management

For Gen X women, seeking financial advice could determine if they have a comfortable retirement

Matthew Swieconek
4 August 2023
13 min read

4 August 2023

A significant challenge facing the industry is the gender superannuation gap with women lagging far behind men in retirement savings. Recent research suggests women earning the median wage will accumulate approximately $393,676 in super, $151,000 below what is considered a ‘comfortable retirement’. Without financial advice and a clear financial strategy, many women may be at significant risk in their retirement.

According to the Association of Superannuation Funds of Australia (ASFA), the average superannuation balance of women aged 60-64 is $287,777, while men in the same age bracket have an average of $357,777. According to the ASFA Retirement Standard, single people must save at least $595,000 when they retire to live comfortably, while couples need at least $690,000. So, while both men and women may be significantly behind in their retirement savings, women appear to be at a higher risk of financial insecurity when they reach retirement age.

So, how can Australian women reduce this risk?

The importance of financial advice for Gen X women

Our research report, The Cost of Doing Nothing When Preparing for Retirement shows that many women have misconceptions about financial advice, which can prevent them from seeking advice that could make all the difference to their financial outcomes in retirement.

These misconceptions predominately centre around beliefs that the cost of financial advice is too expensive, and that financial advice does not provide enough value, but our modelling shows that even when they’re less than ten years away from retirement, many women can still benefit from financial advice but that the gains increase the earlier you start.

Using financial modelling based on a set of assumptions, we demonstrate that a woman earning $100,000 p.a. and accessing wealth management advice in her mid-30s could grow her net financial assets to an estimated $664,000 more than if she doesn't access financial advice. And you can start with a few simple strategies.

2023_Findex_Gen X women seeking financial advice_insight*This is a hypothetical example only

Financial advice has an instrumental role to play in empowering Australian Gen X women to save the funds needed for a comfortable retirement. By exploring the gender superannuation gap, the consequences of insufficient superannuation, and the benefits of seeking financial advice, we aim to equip women with the knowledge they need to navigate their financial journey confidently.

Understanding the gender superannuation gap

Under the superannuation system, the law requires employers to contribute a minimum percentage of their employees' earnings (Superannuation Guarantee) to a superannuation fund. You can increase your super contributions by sacrificing your pre-tax income or contributing your post-tax income. Either way, your funds can be accessed when you reach your preservation age and meet certain conditions.

Our report suggests that despite many Aussies depending on superannuation to provide them with a comfortable retirement, two-thirds of Australians between 35 to 65 years are not confident that they will have the financial resources for a comfortable retirement. And the confidence diminishes with age.

Research shows a significant disparity between superannuation savings of Australian women and men. According to the Australia Institute's Centre for Future Work, women accumulate $136,000 less than men in superannuation. But what exactly are the factors contributing to this gender superannuation gap?

Factors contributing to the gender superannuation gap

  • Pay gap. Since superannuation is linked to income, it’s only logical that the gender pay gap will impact the superannuation gap. Employer contributions are calculated as a percentage of the worker's salary. So, the more you earn, the more you can contribute to your super fund and the more you're left with for additional contributions. The Australia Institute's Centre for Future Work research shows that Australian women earn $1.01m less over their working lives than men. Lower earnings mean lower contributions, resulting in smaller savings.

  • Part-time work. Women are more likely to be engaged in part-time or casual jobs, which often offer limited or no employer superannuation contributions. There are many reasons for this, one of the more common reasons for women to work part-time involve family and childcare obligations.

  • Early retirement and longer life expectancy. On average, Australian women live to 85, and men live to 81, so they have a longer retirement period. That means they may have to stretch their retirement savings over a longer period, increasing the risk of financial insecurity later. They also tend to retire an average of seven years earlier than men, so they have less accumulated savings.

  • Career breaks. Women experience more career interruptions due to caregiving responsibilities, such as caring for family members. These interruptions can reduce their income, reducing the growth of their superannuation savings.

  • More risk averse. According to the 2020 Australian Investor Study, women are more risk-averse in their investments. The risk aversion can make them stick to conservative or default investment options even if they are not appropriate for their situation or stage in life. This can result in missed investment opportunities.

The consequences of insufficient superannuation

According to the ASFA Retirement Standard, couples and single people need $690,000 and $595,000 in superannuation balances for a comfortable retirement and $100,000 each for a modest retirement. What constitutes "comfortable" and "modest" varies depending on individual financial goals, retirement plans, and desired lifestyle standards.

But according to the Retirement Standard, a comfortable retirement lifestyle allows retirees to afford:

  • Daily essentials like groceries, transport, and home repairs

  • Private health insurance

  • Exercise and leisure activities

  • Restaurant meals

  • Annual domestic trip

  • An international trip every seven years

While a modest retirement lifestyle allows retirees to afford the following:

  • Basic health insurance

  • Infrequent exercise

  • Leisure and social activities with friends and family

Our report found that while many Australians see superannuation as an important vehicle for retirement, they are reluctant to seek the advice they need to build on what they have – which could be leaving them vulnerable.

Impact of inadequate superannuation on Gen X women's retirement lifestyle

Our research findings show that as Australians approach retirement, they become less confident they will have the financial resources to retire comfortably. Only 5% of Baby Boomers, 17% of Gen X, and 22% of Millennials are very confident they will have the resources to have a comfortable retirement.

2023_Findex_Gen X women seeking financial adviceIf these uncomfortable sentiments spill over into actuality, what could the impact of inadequate retirement savings look like?

  • They may have to keep on working. Retirees that don't have enough savings might have to keep working to meet their daily expenses and support their desired lifestyle.

  • They may rely on government support. Gen X women with inadequate superannuation may rely more on government support programs like Age Pension. But most of these programs give just enough money to afford the necessities, so it can lower their quality of life.

  • They limit their flexibility and choices. The need to go back to work and the limited savings can limit the opportunities to pursue experiences and activities retirees envisioned for their retirement. They include travel, hobbies, and other leisure activities that need time and money.

  • Their health may deteriorate. Aging often increases healthcare needs. Inadequate superannuation can make it challenging to afford quality healthcare, leading to health deterioration. If they pass away, they can leave their families settling significant medical and funeral expenses.

While it’s true that the higher your super balance, the more Gen X women will have to support the lifestyle they desire during retirement, it’s worth noting that’s it’s not the only vehicle they should rely on to meet their retirement goals – and exploring other options may be obtained through the help of financial advice.

Debunking misconceptions about financial advice

According to our report, 61% of men believe they understand the financial resources they need in retirement compared to 44% of women. In addition, 27% and 15% of women and men rate their understanding as poor.

But do they seek professional advice to understand the financial resources they need? Surprisingly, no. Despite more than 80% of Australians believing they could benefit from financial advice in retirement, only 24% of women and 37% of men have sought advice. What's stopping them?

2023_Findex_Gen X women seeking financial adviceThrough our findings, we uncovered three reasons why women don't seek financial advice to help in retirement planning.

  • Perceived cost: Many women who don't seek financial advice believe it's too expensive and they cannot afford it. But financial advice comes in various forms and fee structures to suit all budgets. For example, Findex's Family Pricing Model clears the barriers to entry for younger people. You can also use your superannuation to fund financial advice.

  • Earning capacity: Many women who don't seek financial advice believe they don't earn enough to make it worthwhile. 51% of Aussies willing to seek financial advice in the future would do it if their financial circumstances changed by receiving a big pay rise, receiving an inheritance, etc. But financial advice can help them make the most of their current and future earnings.

  • Procrastination: People may delay seeking financial advice for retirement because they have competing priorities or feel uncertain about the process. The longer they wait, the less they will have in retirement.

The value and benefits of financial advice

Seeking financial advice for retirement gives you access to expert knowledge, personalised guidance, and professional support tailored to your financial circumstances.

It can also help you with the following:

  • Wealth accumulation strategies. Financial planning can teach you the most effective wealth accumulation strategies for your circumstances and retirement objectives. You can learn about diversification, asset allocation, and investment opportunities and develop a personalised plan to leverage the appropriate financial instruments to achieve your goals.

  • Retirement planning and goal setting. Financial advisers can help you set realistic retirement goals, estimate future expenses, and develop strategies to accumulate enough funds to handle the expenses. They can also help you navigate superannuation strategies to ensure a comfortable lifestyle.

  • Tax and investment optimisation. Financial advisers can help you minimize your tax liability. They can identify tax-efficient investment opportunities, strategize income distributions, and help you choose a strategy that matches your goals and circumstances.

  • Risk management and behavioural coaching. Financial advisers can assess your risk tolerance and recommend appropriate risk management strategies. They can also provide behavioural coaching to help you make rational financial decisions and focus on long-term goals.

So, while the cost of financial advice could be a concern, the long-term benefits can make it worth every dollar. If you have a chance to be up to six figures better off by the time you retire, why wouldn't you take the plunge?

Why Australians receiving financial advice could be better off

Our report findings shows that people who seek professional financial advice are three times more likely to say they understand what they need to live comfortably in retirement, compared to those who don't.

Take our previous example of a woman aged 35, earning $100,000 p.a. and accessing wealth management advice in her mid-30s. We showed you that she could potentially deliver $664,000 more at retirement age than had she not sought any advice. Now, what if she were to delay seeking advice until she turned 50?

2023_Findex_Gen X women seeking financial advice*This is a hypothetical example only.

Our modelling shows that if she earns $100,000 and above and seeks advice at the age of 50, she stands to be $192,000 better off in retirement than if she hadn’t sought any financial advice, which is a lot less ($472,000 less) than if she’d started at 35.

Why is that? Because of the following reasons:

  • Time value of money and compound interest: Starting early gives your assets enough time to grow and compound. For example, your assets will generate substantially more returns if they remain invested for 30 years than ten years.

  • Maximising superannuation contributions and investment returns: Financial advisers can guide you on salary sacrificing, contribution limits, superannuation investment options, and tax-effective strategies to maximise retirement savings.

  • Tailored financial strategies based on individual goals and circumstances: Financial advisers tailor financial strategies based on your income, expenses, risk tolerance, and long-term objectives to create personalised plans.

Engaging early with financial advice empowers you to make the most of your financial resources.

Overcoming barriers to seeking financial advice

Findings reveal that many Australian women don't seek financial advice because they think it's too expensive, have competing priorities, and don't think they make enough for advice to be worth it.

However, as we have debunked:

  • In most situations, financial advice adds more value than it costs.

  • The longer you postpone engaging with the advice, the less impact it will have on your retirement goals.

  • You don’t have to have a lot of money to benefit from financial advice, just start with what you have.

Inadequate retirement savings reduces your ability to afford the retirement lifestyle you desire and can force you to go back to work and rely on government support. Seeking professional financial assistance is a proactive step toward financial empowerment. A trusted financial adviser has specialised financial knowledge and expertise you can access to maximise your current and future financial potential. They can assess your individual goals, income, expenses, and risk tolerance to create a diversified portfolio that aligns with your current circumstances and retirement goals.

But, according to our report they can minimise the gender superannuation gap through financial advice. Financial advice can teach wealth accumulation strategies, retirement planning and goal setting, tax and investment optimisation, and risk management. The knowledge and skills they learn can help them plan for the lifestyle they want in retirement. Without financial advice and a clear financial strategy, many Australian women may be at significant risk in their retirement.

But they first must overcome barriers to seeking financial advice, such as procrastination and the perception that it's too expensive. By overcoming them, women can avoid the challenges of managing their finances and maximise their retirement savings.

If you’re ready to control your financial future, get started with Findex today. To learn how, download the Preparing for Retirement report or get in touch with our Wealth Management team for a complimentary discovery meeting.

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Author: Matthew Swieconek | Head of Investment Relations