Page 21 - Advice Matters Magazine - FWP - Dec 24

Caregiving can have a

retirement sting

Around 3 million Australians are unpaid in 2024-25, which rises to 12% from 2025-26, and assume
caregivers. Most face a super risk. investment returns of 6.5% per annum (including CPI growth
of 2.5%); annual real wage of 1.2%; and a 15% tax on SG
National Carers Week runs from Sunday October 13 to Saturday contributions.
October 19 this year, and aims to recognise, celebrate, and raise
awareness about the 3 million Australians who provide care to Of course, the numbers would likely be substantially higher for
relatives or friends in need of their support. people who need to take longer periods out of the workforce to
provide caregiving.
The need to provide support can arise at any time as a result of
people needing to help others with a disability, a mental health We’ve undertaken additional calculations, using the same
condition, a chronic or terminal illness, or who are elderly. assumptions, based on individuals earning 50% less over a five-
year period so they can be a part-time caregiver.
In many ways, caregivers are unsung heroes. Their work
is invaluable, but they are typically forced to forego paid This would lead to a $26,100 retirement savings gap for a
employment and also miss out on precious compulsory 25-year-old compared with someone the same age working full-
superannuation payments that would otherwise have been paid time; a gap of $29,900 for a 35-year-old; and a gap of $24,300
by an employer. for a 45-year-old.
As research by Vanguard shows, the financial cost of caregiving Mitigating the financial impacts
can be very costly over time and can have a significant impact There are a number of ways individuals can potentially lessen
on retirement savings balances. the long-term impact on their superannuation balance from
There are a number of ways individuals can potentially lessen having to stop work to provide caregiving on a temporary basis.
the long-term impact on their superannuation balance from 1. When full-time work is resumed, try to make personal
having to stop work. concessional contributions (taxed at 15%) in addition to the
The cost of caregiving compulsory SG contributions made by an employer. Even
We’ve estimated the potential impacts on individual small extra amounts can make a big difference. For example,
$20 per week adds up to more than $1,000 into super every
superannuation retirement balances for those who need to year.
provide unpaid caregiving.
2. Individuals may also be eligible for the Federal Government’s
The numbers represent the monetary effect of foregone automatic $500 annual superannuation co-contribution
compulsory Superannuation Guarantee (SG) contributions as a payment. For more information, check the Australian Tax
result of people taking 12 months of carers’ leave by comparing Office’s website. When added to extra contributions, the co-
them to the estimated retirement balances of individuals who contribution payment can significantly reduce the impact of
do not take any time out of the workforce. taking carers leave.
They are in today’s dollars and adjusted for inflation, real wage 3. Making concessional superannuation catch-up contributions
growth, and rounded to the nearest 100 dollars. However, the down the track is another option. This can allow individuals
numbers do not take into account the possible impact of career with a total superannuation balance below $500,000 to take
breaks on an individual’s’ actual wages growth over time or any advantage of unused pre-tax contributions from previous
additional superannuation contributions they may make at a financial years, on a five-year rolling basis.
later stage.
4. Individuals can also make after-tax contributions into their
For a 25-year-old taking one year of carers’ leave (based on a superannuation in any financial year, perhaps using money
median wage of $43,200), we’ve estimated their superannuation from an inheritance or an asset sale. The current limit
balance would potentially be $12,900 less at age 67 than is $120,000 per financial year, however individuals can
someone of the same age who takes no carers’ leave during contribute up to $360,000 in one financial year under the
their career.
three-year “bring forward rule”.
Using the same measures for a 35-year-old (based on them If you are a caregiver and unsure about your options or need
earning a median wage of $62,500), we’ve estimated their some additional advice on how to protect and maximise your
retirement balance would be $14,300 lower; and likewise, for a retirement savings over time, come and talk to us today.
45-year-old (based on a $65,600 median wage), we’ve estimated
their retirement balance would be $11,500 lower than someone Source:
who didn’t take any carers’ leave. https://www.vanguard.com.au/personal/learn/smart-investing/
The calculations are based on the 11.5% SG contributions rate retirement/caregiving-can-have-a-retirement-sting

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