How do I protect my daughters from the ‘motherhood penalty’?

I am a 49-year-old woman who wishes I had done some things differently. I have two beautiful daughters, aged 15 and 18, whom I gave up work to raise for about a decade. My work is in marketing, and I am nowhere near back to where I was when I left. I also haven’t had the career opportunities that I believe I would have otherwise. Thank goodness my husband’s super is pretty good, but I have very little. My question is: how can I prevent my daughters, if they decide to have children, from being so financially (and professionally) hurt? Kathy

Kathy, what you have experienced is known as the motherhood penalty. A 2023 Treasury paper called Children and the Gender Earnings Gap found women’s earnings fall by an average of 55 per cent in the first five years after becoming a parent, while men’s remain unchanged.

Women typically have lower super balances than men as they are more likely to take time off work to raise children.Credit: Simon Letch

This then typically creates a lifetime-earnings shortfall of $1 million, according to the Australia Institute. And because superannuation is earnings-based, it bakes in the disadvantage all the way to retirement.

Take a 30-year-old woman on the median wage of around $75,000 – if she has a year off paid work (to work even harder raising a child), her projected super balance at retirement falls from $611,300 to $587,500 – a loss of $23,700, according to the Association of Superannuation Funds of Australia.

But that’s for just one year away from the workforce. Overall, women who have retired in the past few years have done so with super balances that are 25 per cent less than those of men.

So, regarding protecting your daughters, you ask the right question at the very right time (and there are solutions I will come back to for you). The great thing about super is it gives everyone automatic access to compounding, the guaranteed way to wealth.

With both your daughter’s and your largest earning potential is presumably ahead of you – use the super system to take full advantage.

No withdrawals in your working life mean that each year you earn returns on beautiful returns on spectacular returns. And that makes for a powerful phenomenon: the earliest money you save grows the greatest amount.

Now, minors can have super funds – you just set one up directly with a super manager, then choose the fund’s investment mix – in general, the younger you are, the more investment risk you can afford to take and the more you can theoretically allocate to shares.

Better still, anyone can contribute to super for them, subject to the usual overall annual after-tax limit of $120,000. But here’s the huge opportunity – provided a child is the one to actually pay in the money, an after-tax contribution of $1000 a year will earn them the government co-contribution of $500.

All they need to claim this guaranteed, potentially annual bonus is to submit a tax return and have taxable income. So as soon as your daughters have jobs, Kathy, they could be stashing away $1500 a year for just $19.25 a week. Then the compounding benefits over all the time they have left will be enormous.

Say they get just one $1500 super top-up, with the help of the $500 from the government, at age 15. By retirement at 60, that will have turned into an incredible $26,778 (assuming a fairly modest 7 per cent annual investment return).

Remember they have only put in $1000 themselves – all the rest is co-contribution ($500) then compounded returns. But consider if they received the $1500 every year until they turned 60.

They would have $391,108 in total savings from only $57,375 of contributions … a full $22,500 of which were made by the government – though the co-contribution offer does cut out once they earn above $62,488.

And for you, with time still up your sleeve, get contributing to super just as much as you can. A salary sacrifice will snare you more money in than comes out of your pocket because it swaps your marginal tax rate for just the 15 per cent super contributions tax.

You can also mop up your unused amounts of these before-tax limits, going back five years, under carry-forward provisions. With both your daughter’s and your largest earning potential presumably ahead of you, use the super system to take full advantage.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter, and Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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