It’s exciting times when there’s a baby on the way, and a big part of baby planning is budgeting for now and into the future. It’s fun to budget for cute outfits, toys and state-of-the-art prams, but there are larger-scale financial decisions to be made: Who will take time off work, for how long, and how will this impact the family lifestyle and weekly expenses?
How will your new family impact your super?
One critical budgeting consideration that can sometimes get neglected when growing your family is how maternity or paternity leave and family-related career breaks will impact your super.
Some parents prefer to be the primary carer for their children during the early years (1). These parents will either extend their parental leave or work part-time until their kids start pre-school or school. But how might not working affect your super?
According to ASIC’s Money Smart career break calculator, someone with a starting salary of $50,000 who takes three years off work for the family can miss out on up to $14,000 in super.
Here are some tips on how to safeguard your super when you’re having time off work to look after your family.
1. Estimate the impact
To make sure you’re aware of the potential costs of staying at home, you can use ASIC's Money Smart career break calculator. It will give you an estimate of how much super you’ll miss out on when you’re on maternity or paternity leave.
2. Use the ‘One Per Cent Rule’
The Association of Superannuation Funds of Australia (ASFA) suggests that using the 'One Per Cent Rule' (2) can help overcome a superannuation shortfall.
This means that for every two years out of the workforce, there needs to be an additional 1% super contributed for the remainder of your working life to ensure a comfortable retirement.
3. Explore spouse contributions
You may be able to have your spouse contribute to your super account while you’re not working, which can earn them a tax rebate of up to $540. It’s worth exploring ways to make additional contributions to your super account. You should factor this into your new baby budget.
4. Keep your super in one place
While you’re not working, make sure that you’re not losing your hard-earned money to multiple account-keeping fees. Consolidate your super into a single account so you don’t have to pay anything extra while you’re not making additional contributions. You can consolidate your super using the Government’s Super Seeker tool or, if you have Essential Super, using our Super Sorter tool or calling our free concierge service on 13 4074.