We’re living longer and healthier lives than ever before and, because of this, retirement has never been so full of opportunities. Travel, learning, exercise, music, art… There are a number of different ways retirees can spend their time after work. But, to make the most of a lengthy retirement, careful planning and foresight is necessary to ensure you have the funds available to lead the life you wish to live when you retire.
Planning for retirement while you’re young is something most Australians do automatically – employee superannuation payments are mandatory, even for casual workers who are 15 years age – but, by taking some additional measures to save for retirement while you’re young, you can ensure you have a healthy balance to retire with that’s relatively hedged against any global financial events that are out of your control. Here’s our simple guide to planning for a happy, financially secure retirement while you’re still young.
It’s never too early
The Association of Superannuation Funds of Australia estimates you need $1,000 a week to enjoy ‘comfortable living’ in your retired years and, with the age of pension-eligibility rising, the onus is on the individual to provide this for themselves.
Putting extra money aside for retirement while you’re young can make a huge difference when it comes to income during retirement. For example, accumulating $1 million by the retirement age of 67 will allow you around $1,500 per week during retirement. If you start working towards that $1 million when you’re 25, you only need to put away $378.77 each month to achieve the benchmark at age 67. If you only begin this process at age 50, you’ll need to put $3,136.65 in savings each month, which is a huge difference.
Another factor to bear in mind is the power of inflation. The value of $1 million today will likely be a lot less than the value of $1 million in 42 years time and, if you’re 25 and debating with yourself over the $379.77 per month, remember, a proactive approach is the only way to secure a happy, lively retirement – regardless of the market changes.
Consolidate your lost super
If you’re serious about having enough money to live comfortably in retirement, it’s crucial to consolidate your lost super as soon as possible. Having your superannuation spread over multiple funds can be extremely detrimental to your collective savings, due to annual account fees and reduced interest for lower-value accounts. The good news is, it’s never been easier to transfer everything into one account.
Simply head to the Australian Taxation Office website, and use their SuperSeeker resource to find any lost super and transfer it into one preferred account. It’s also a good idea to speak with a financial planner if you’re looking to choose an alternate fund for your super. The adviser can help you weigh up the costs and benefits of using certain accounts, and also flag hidden costs such as exit fees and the investment implications of switching funds. By making these decisions early on, you can secure a financially healthy retirement for later in life.
Consider salary sacrifice and voluntary contributions
Making a salary sacrifice is probably the last thing on the minds of many young Australians at this stage, but it can make a huge difference to the amount of super available during retirement. As the name suggests, salary sacrificing does mean a reduction to your take-home pay in the short-term, but tax concessions can make it ultimately worthwhile.
This is because salary sacrifice contributions don’t attract any income tax, and are instead taxed at a rate of only 15 per cent. Considering general income can be taxed at rates as high as 45 per cent, voluntary contributions through salary sacrifice mechanisms can make a lot of sense.
Again, it’s a good idea to consult a financial planner before going ahead with salary sacrificing but, if you have the means to put a little extra aside every payday, this can go a long way in ensuring you have a little extra money left over in retirement.
Start creating a diversified portfolio
Although no one can predict what’s going to happen in the various financial markets in the future, one thing is for certain – a diversified portfolio is the best way to hedge yourself against forces outside your control. By investing across a range of different fields, including property, the stock market and relatively safe financial mechanisms like annuities, you can ensure you’re well placed to meet your financial goals no matter what happens in the wider market.
While it can be quite difficult to begin a portfolio, as setting it up often requires a significant sacrifice in terms of time and money, making the effort to create a diversified portfolio while you’re young can have you well placed to enjoy a happy, successful transition to retirement when the day finally comes. Again, it’s best to contact a financial planner when starting your portfolio, and it’s important to make sure the adviser is independent – not connected to a certain product or market they might urge you to invest in.
Take responsibility
The goalposts for retirement are changing and, with the pension age continuing to rise, the onus is on you, as the individual, to do whatever you can to secure a happy, healthy retirement for your future. There are lots of ways to set yourself up for retirement while you’re still young and, with a proactive attitude and enough self-discipline, you can make significant headway in creating a financially secure retirement that is full of opportunity.
