It is a universal truth that when your job involves being a stay-at-home parent, you get to be completely and unashamedly biased about the end product of your hard work.
It’s also common knowledge that when you are a stay-at-home parent, the pay is terrible.
In the short term, you are giving up your income. Your household feels the effects of this immediately, and you adapt as best you can.
However, there is a longer-term consequence here too, and many people don’t give it much thought.
Your KiwiSaver balance. When you stop your paid work, you are also sacrificing the ongoing contributions to your retirement fund. Thirty years or so down the track, this will matter hugely, as it is money that did not have a chance to exponentially grow to feather the nest of your retirement.
Women get the raw end of the deal. Statistically, if a family has a stay-at-home parent, it is the mother. About 20% of women who are not in the workforce list their primary occupation as childcare. This compares with 3% of non-working men.
The common scenario is that the man continues with full-time work, while the mother takes some time out of the workforce to stay at home with the kids. As Castle Trust Financial Planning’s Glyn Lewis-Jones points out, this creates an imbalance in retirement savings.
“The father’s KiwiSaver contributions are usually based on his earnings, but he wouldn’t be able to achieve those earnings if the mother wasn’t at home with the children.”
Due to this time out of the workforce, as well as the lingering pay inequities between men and women, the latter’s earning ability is generally worse, and this is amplified over time, resulting in a huge disparity in KiwiSaver balances.
“It is the woman who faces more of a problem with their long-term financial future,” Glyn says.
New Zealand Retirement Commissioner Jane Wrightson recently discussed the fact that the current average KiwiSaver balance for men is 20% higher than it is for women.
“The data is clear, and the reasons are obvious,” she said. “We earn less over our working lifetimes, we spend more time out of the workforce, we bounce back less successfully after financial life shocks, like divorce, and we live longer.”
Glyn’s solution is to help his customers make an individual, target-based plan. “If each partner has their own target, it is relatively easy to work backwards and look at the contribution rates necessary to hit those targets.”
If your relationship flourishes, and you are paying for your joint retirement from the same pool of money and with the same financial mindset, in theory it doesn’t particularly matter whose account it comes from. If, however, your relationship ends before you climb to the top of the retirement hill, or you and your partner have differing ideas about controlling the purse strings, your journey down the other side could quickly go from “comfortable descent” to “slippery slope”.
For people who are not in relationships, the same method successfully applies. Glyn urges singles and couples alike to seek help setting their targets and working out how to achieve them.
To future-proof your retirement savings, call in to see the team at Castle Trust Financial Planning on Motueka’s High Street.