More working-age Australians intend to take a career break at some point. We've calculated the potential impact of doing so on retirement superannuation balances.
Extended career breaks were once a rarity for most Australian workers but these days they are more common.
Vanguard’s inaugural How Australia Retires study has found that 2 in 5 current working-age Australians (40%) – those that did not identify as being retired – expect to take some form of extended break from work during their career, probably between their twenties and fifties.
Those career breaks are most likely to be in the form of parental leave, study leave, or extended holidays.
Vanguard’s study found that career breaks are more likely to be taken by those working-age Australians on higher salaries who have a retirement plan in place and possess higher confidence in funding their desired lifestyle in retirement.
Unlike the generations before them, 1 in 2 younger Australians (under 35 years old) expect to take parental leave, especially in their thirties.
This next generation of retirees will need to factor in the financial cost of extended career breaks, particularly the impact that time away from full-time work can have on superannuation balances and long-term retirement savings.
The Vanguard study found that 39% of males and 61% of females aged under 35 expect to take, or have already taken, parental leave.
This contrasts with Australians over 55 years old, whose lives were more likely characterised by full-time work from their twenties through to their sixties. Their path to retirement was rarely interrupted by further study, parental leave, career breaks or multiple career changes.
Costing career gaps
There are many variables when it comes to calculating the potential cost of a career break, including the amount of time taken off from work, an individual’s age, and their salary.
Vanguard has done some broad calculations in the table below to illustrate, on a very general level, the potential long-term financial impact of taking a one- or two-year career break.
The dollar estimates are based on specific salaries and superannuation contribution rates and assume a wide range of other financial variables.
But, even though the estimates are hypothetical, what’s clear is that career breaks could have a substantial impact on superannuation balances by the time a person reaches their retirement.
The earlier a career break is taken, and the longer the break, the bigger the potential financial impact.
Table 1: Estimated impact of career break on superannuation balance at retirement
Age at which the break starts
Break Length (years)
Notes: These are highly stylised estimates for the purpose of illustration only and represent the estimated impact, in today’s dollars, on an individual’s superannuation balance as at age 67 as a result of foregone Super Guarantee (SG) contributions during a career break starting at a particular age. The figures are based an assumed SG rate of 10.5% (being the current SG rate, noting also that legislation has specified that this rate will increase in future) and adjusted for CPI (assumed at 2.5%) and real wage growth (assumed at 1.5%), and rounded to the nearest $100. For the purposes of this illustration it has also been assumed that SG contributions made at age x are invested when the individual turns age (x+1), and that the foregone contributions would have achieved a consistent annual earnings rate equal to CPI plus 4% net of fees, costs, taxes and inflation. Actual performance of superannuation products may differ. The estimates have been determined based on the following assumed annual salaries which reflect median gross wage data reported in the Australian Bureau of Statistics’ Census 2021:
- Wage at age 25: $41,500
- Wage at age 35: $60,000
- Wage at age 45: $63,000
The above estimates of the impact of foregone SG contributions are not general or personal advice. They do not take into account the actual situation, financial objective or needs of any particular person and are not intended to be relied on for the purpose of making a decision about a financial product. Consider obtaining advice from an Australian financial services licensee before making any financial decisions.
Making extra super contributions
One obvious way to offset the impact of foregone superannuation contributions from taking a career break is to make additional super contributions, either before or after the break.
The Vanguard study found that those who contribute extra into their superannuation funds are significantly more likely to feel prepared and confident in funding their retirement lifestyle.
This was evidenced by 36% of those presenting themselves as being highly confident make regular additional superannuation contributions .
Most notably, only 5% of those who presented themselves as lacking direction make regular additional contributions to their superannuation.
To read the full How Australia Retires study, click here.
General advice warning
Vanguard is the product issuer and the Operator of Vanguard Personal Investor. Vanguard Super Pty Ltd (ABN 73 643 614 386 / AFS Licence 526270 is the trustee of Vanguard Super (ABN 27 923 449 966) and the issuer of Vanguard Super products. We have not taken your objectives, financial situation or needs into account when preparing this report so it may not be applicable to the particular situation you are considering. You should consider your objectives, financial situation or needs and the disclosure documents of any relevant Vanguard financial product before making any investment decision. Before you make any financial decision regarding a Vanguard financial product, you should seek professional advice from a suitably qualified adviser. A copy of the Target Market Determinations (TMD) for Vanguard’s financial products can be obtained at vanguard.com.au free of charge and include a description of who the financial product is appropriate for. You should refer to the TMD of a Vanguard financial product before making any investment decisions. You can access our IDPS Guide, Product Disclosure Statements, Prospectus and TMD at vanguard.com. au or by calling 1300 655 101. Past performance information is given for illustrative purposes only and should not be relied upon as, and is not, an indication of future performance. This report was prepared in good faith and we accept no liability for any errors or omissions.
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