Financial planning is really about… employment advice for young women (1)

Samantha was an unusual member of Gen Y. Born in a country town, her father owned a mechanical engineering business. She hated school but was a smart cookie. Dad’s financial adviser offered to have a cup of tea with her after she was suspended from school (yet again) halfway through year ten.

Following this chat, her life changed a lot. Dad overcame his initial reluctance and apprenticed her at the age of 16. She worked hard and was trade-qualified by the age of 20. Her old school mates were just returning from their gap years and getting ready for first year Uni at the time.

Samantha then decided to head north and west and took some work on the mines. In many ways it was an unpleasant place to live, but she was earning $130,000 a year plus super. This was an unheard of amount for a young woman from her town. But it is just on average for the mining industry – remember, she was trade qualified.

One of the best bits was that Samantha was also receiving $12,350 every year into her super fund. After tax, this was forced saving of $10,500 that she cannot touch until she retires.

As her history shows, Samantha is quite canny and she knows that she does not need all of her salary to live on. She therefore organised to salary sacrifice up to her age limit of $30,000 a year. This left her with $25,500 in her super fund.

The mining life is hard, especially for a young woman. After a year she had had enough. She had saved around $40,000 outside of super, which she ‘blew’ on a three month backpacking holiday and a ute. Then she returned to her home town with a plan for her dad: let’s modernise the family business. Her first day back was her 22nd birthday.

What happened to her super? It is held in a low cost fund and so far she has earned the target 3.5% plus inflation on the $25,500 she contributed. Now she can leave time to do its thing, confident that if this earning rate is achieved, then the $25,500 she deposited into super will be worth over $100,000 – in today’s dollars – by the time she retires in 40 years’ time.

The average female super fund balance is just over $40,000 (source: Australian Super Women and Super). The average bloke has just over $70,000. The average retirement payout for women is $112,000 whereas for men it is $198,000. The difference is $86,000.

In one fell swoop, Samantha has more than made up the difference between her super and that of the average man. The rest of her life can have the same complexion as it has for other women (although it probably won’t). She too can earn less than her male counterparts (although she probably won’t). But she won’t suffer financially because she has to take time out of the workforce to raise children, etc. and she will still enter retirement in slightly better nick than the average male.

The Dover Group