Are some of the questions like “Should I start planning retirement already?” or, “How much should I start investing in my Super Fund?” eating up some of those brain cells during break time in your office hours or when you are having a relaxed travel weekend? You would be surprised to know that even experts suggest not to invest anything in your super fund until you are completely debt-free.
The other day a friend of mine in her mid-30s asked financial experts how much she should be putting into super to make it worthwhile. “Nothing” was a professional’s response. She has just bought her own home in Sydney and until she’s paid off her considerable mortgage, there’s no point worrying about super. The planner’s professional advice was to pay the home loan, build savings in an offset account, sort out her wills, and check her life and income protection insurance, but forget about super until a little more older. She was suggested to buy a few shares directly but only for the learning experience.
If you listen to politicians and the financial services industry you’d imagine there was some kind of crisis in retirement savings. But if MPs really believed that, they wouldn’t have delayed the increase in the compulsory Superannuation Guarantee paid by employers from 9.5 per cent to 12 per cent.
Hence, the best way is to be smart and take some significant steps which should definitely be made panic-free. Here are some of those smart tips to ensure that you enjoy a little more, whilst also thinking about that eventual future dream of never having any Monday Blues!
Firstly, have a financial plan mapped out on paper, no need to cancel those Overseas dream travel plans right away!
It’s a good idea to have a financial roadmap that spells out things like your financial goals, expenses and debts so you always know where you are. A detailed plan can also help you stay on track with your goals, as you can check in regularly to see how your savings are going, and how any big expenses can set you back.
Secondly, set up your savings goal and reduce your expenses
You could consider spending less and saving more by embracing the FIRE (Financial Independence, Retire Early) philosophy of living frugally, saving hard and investing wisely. This means spending less now in order to put more aside for your retirement, so you may be able to better enjoy those work-free years. Try to cut expenses that are really unnecessary. For example, not every branded top that you see needs to enter your wardrobe or, that new phone need not be immediately bought just because it is the latest smartphone in the market.
Thirdly, retirement savings usually gets conflated with balances in superannuation funds, yet it’s not even close to being the same thing.
Super is only about 15 per cent of the wealth of most households, according to the analysis of ABS data by the Grattan Institute. Even without counting the family home, the average Australian owns as much outside the super system as inside. As the graph shows, this is true for even those in the 25-34 and 35-44 age groups who have had high levels of compulsory super for most of their working lives. It’s also true across most income levels. It makes sense because people are not just saving for retirement, they’re saving for life.
Fourthly, don’t discount the value of the family home. It’s an important asset.
If you own your home outright by the time you retire, then you have a roof over your head without the burden of mortgage payments or rent. That’s worth a lot in terms of financial security and reduced living expenses. It counts for $200,000 in the new age pension assets test, which comes into effect in January, but is often worth much more. (Non-homeowners are allowed $200,000 more in assets than homeowners before they start losing the pension). The downside is your home doesn’t usually provide an income, but that doesn’t have to be the case but, don’t forget you can always be an Airbnb host to slowly start earning a living out of that beautiful house that you built for yourself.
Last but not the least, create a retirement budget
Calculate how much you may need in retirement. You may not have as many expenses, but you wouldn’t want your standard of living to drop substantially. Think about dividing your outgoings into essentials, like groceries and utility bills, and discretionary, like overseas trips and a new car. And consider how you’ll cover expenses like home repairs and renovations.
At Forward360, we give wings to that dream you just saw while thinking about ageing and retirement. Our team is here to understand your goals and what you are working towards and take you by the hand to help you achieve that in a way that is customised to your needs.
Co-founder and Managing Director at Forward360. Simon ensures all clients get the financial advice they need to reach and exceed their financial goals — both personally and professionally.
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