Will Women Face Financial Hardship in Retirement?
By Debra Lohrere
The looming hardship that will be faced by many of the baby boomers once they retire could well affect women a lot harder than men. The likelihood of the government being able to afford any sort of reasonable amount of pension is very slim, simply because of the magnitude of the number of people who will be retirees, compared to the working population. The Australian government has realised this, and that is why they introduced the compulsory employer paid superannuation scheme and are even now beginning to give financial incentives to Self-funded retirees. They are also now encouraging people to work well beyond the 65 year barrier.
Most people have never sat down and even considered the ramifications of why the compulsory super was introduced and for many of us it is a matter of too little too late. Even for the young women in our society – who have a full working life ahead of them, they still cannot rest assured of a comfortable retirement.
Why is this? It is because that unfortunately even with contributions at the current level of less than 10%, someone on an average wage who works continually for 30 years, is still going to find themselves trying to survive on an income equivalent to less than $20,000,00 per annum in today’s dollars.
You will notice that I said continually working for 30 years. This is another reason why women are particularly disadvantaged, firstly because they often have to take up to ten years leave from the workforce to raise children, secondly because women in general earn less than their male counterparts and thirdly because an enormous proportion of the women in Australia, will never have received any previous superannuation contributions, prior to the compulsory superannuation being introduced, and will therefore not have had contributions made over their entire working life so far, giving them even less to fall back on by the time they retire.
Many women may previously not have thought of lack of superannuation contributions as being a problem, as their husbands may have been contributing to super since they first began work. Unfortunately though with the high number of divorces in this country, it is unwise to rely on the fact that your partner’s superannuation will be there for you in your retirement years and even if a large proportion is awarded in a settlement – that it will be sufficient to sustain a comfortable retirement for any length of time.
All of these factors are why women now more than ever, need to begin taking action to build up a source of ongoing income, that will grow to such an extent, as to be able to provide a secure and happy future for themselves and their children.
It needs to be a source of income that is unrelated to physical work…that is an income that is generated from income producing assets – and not from our personal efforts. One of the best sources of creating this ongoing income stream is to begin building an investment portfolio property, also aptly paraphrases as bricks and mortar.
We need to start collecting income producing assets now, so that they will have time to grow and develop so that we will be financially independent for our retirement years.
Property is one of the best types of income producing assets, mainly because through gearing, which is borrowing other peoples money to supplement our own, we are able to control assets of a far greater value, and benefit from the growth on the overall value, including the borrowed portion, in contrast to only benefiting from the growth on the small portion of our own money contributed.
For example, if you have $10,000.00 invested at 7% compounding, then in ten years it will grow to around $20,000.00. If on the other hand you have used that $10,000.00 as 5% deposit on a $200,000.00 property, which grows in value by 7% per year, then after ten years the property would have grown in value to nearly $400,000.00 giving you a profit of almost $190,000.00 instead of a profit of $10,000.00 had you just invested your own money. After 30 years your money alone would have grown to just over $76,000.00 and the geared property would have grown to more than $1.5 million.
This example of course has not taken into account the initial purchasing costs involved to secure the investment property, nor has it taken into account the rental income that you would also be receiving….I have simply used it to demonstrate that the more assets that you can get working for you, the better off you will be.
Debra Lohrere is the author of Creating Financial Security through Property Investment http://www.lulu.com/content/162236 and How to Research Investment Properties http://www.equilibriumbooks.com/investment.htm. Please visit her website at http://debra.lohrere.com/home.shtml
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