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Love the weekends? Well just imagine how much you’re going to love retirement!
But to get there, you need a long-term plan in place, because when your post-working years stretch ahead, money is the last thing you want to be worried about.
By Julie Nipperess
Guess what? You’re never too young to start planning for retirement. And with the national compulsory superannuation scheme in place, there really is no excuse.
Compulsory superannuation was rolled out in Australia in the early 1990s so that the Federal Government could eventually do away with the old aged pension scheme.
The sole premise of compulsory super is that all of us, over the course of our working lives, have the opportunity to save enough to support ourselves financially in our post-working years.
And in theory, the idea is pretty solid. But as anyone nearing retirement age right now will tell you, it’s not always straightforward. In recent months the local and global investment markets have taken a hit as a result of the coronavirus pandemic and market recovery is proving steady, but slow.
So planning for retirement is not just as simple as just saving in super. Additional financial strategies can be required to maximise your super as well as any other accumulated assets to make sure you have enough funds to retire comfortably.
This is not just in case the markets take a downturn (like now) either, but so that you’re not solely reliant on one income stream, and you have financial buffers in place.
The key considerations for retirement are these:
Knowing how much you’ll need is, admittedly, a bit like wondering how long a piece of string is. It’s not completely impossible to answer, but the answer is different for everyone.
Many people will have modest plans for retirement, others might want to travel the world first class … There will be aging health considerations too, and a need to determine the general expenses you’ll need to cover.
Planning for retirement is a complex process and one that should be thoroughly discussed with a professional financial planner.
Last year, a report from the World Economic Forum painted a pretty bleak picture for Americans, Europeans, Australians and the Japanese, with figures suggesting that retirement account balances aren’t increasing fast enough to cover rising life expectancy.
It determined (and this was before Covid-19) that as a result, people could outlive their savings by as much as a decade or more.
According to the data, for Australian men, the gap is about 10 years. However, for women it will be higher, mostly because of the fact that women tend to be the ones who take large chunks of time out of the workforce to raise families or care for relatives, and then only return part-time.
And of course, this year, and potentially the next few, will undoubtedly impact super savings as people lose jobs, access the JobKeeper scheme, work only part-time or on short-term contracts, live on reduced incomes or perhaps even access their super out of financial need.
Imagine that! Having NO savings left and still a decade to live. By that stage of life your income earning options have pretty much expired.
So, the key to ensuring you have enough money in retirement is to begin to prepare early, to understand what you’re saving for, to maximise your super contributions where you can, and aim to build a diverse portfolio of investments.
And of course, your retirement plan should not be a ‘set and forget’ proposition. The plan needs to be reviewed regularly and updated depending on your stage of life.
Recently the ASFA – the peak body for the Australia superfund industry – called on the government for a lift in the Super Guarantee (the amount employers contribute) from the current 9.5% up to 12% as soon as possible, to ensure that Australians can achieve an adequate standard of living in retirement.
But that is unlikely to happen immediately, at least not while the Federal Government focuses on getting business out of the current post-pandemic recession.
The most important thing to remember is that compulsory superannuation is a fantastic starting point. But if you really want to live well in retirement you need to ensure that you actively manage your superannuation, and supplement it with other financial strategies so that when the time comes for you to stop work, you know that you will have adequate funds to support you.
If we can help you with any financial or retirement planning, please contact us.
This is general advice and should not be treated as personal advice.
Julie Nipperess is an authorised representative of Step Up Financial Group Pty Ltd ASFL No: 512509.