As you kick your fresh financial strategy into gear this year, it is important to…
Here is what you need to be doing in your 20s, 30s, 40s, 50s and 60s to prosper in retirement.
Do you know how much superannuation you need to maintain your lifestyle in retirement? Your super is designed to last 20 to 22 years and it can be quite a sobering topic when figures such as $1 million dollars are thrown around, particularly if you are nearing retirement and have nowhere near that amount.
The simple facts are these – superannuation is the single most important saving vehicle for retirement and the sooner you start the better.
Below is a comprehensive look at what you should be doing at each age to plan for your retirement. If you read your age group and think, “I’m not yet achieving that” then it is a good indication that you should consider getting some financial advice. The longer you leave planning for retirement, the more difficult it can be to achieve the lifestyle you want.
Invest in your future by investing in yourself through education and career building.
Investing in yourself is a crucial step in your 20s. By investing in your education and qualifications, you maximize your skills and earning potential, two factors which greatly impact the foundations of your financial future. Establishing and building your career in your 20s can help set you up for your future.
Now is the big opportunity to start taking advantage of the time that is on your side.
Compound interest is key at this point in your life. This is your chance to save and invest early, with any interest earned actually earning interest on itself. The more time spent in the market, the better for your compound interest and your net worth as a result. The more of a chance you give your interest to compound, the faster it will grow over time.
Make the most of compound interest as soon as possible and start making regular contributions to your super.
Don’t waste your time getting bogged down by debt.
At this point you should be avoiding bad debt like the plague. It’s pretty hard to think about making any regular contributions to an investment when you have debt weighing your finances down. Make an effort now to keep your expenses low and your life simple and ‘no frills’. This might mean eating a packed lunch or taking the bus to work, but in turn will also mean paying off debt, paying your bills on time and building a strong credit score. Be smart with your money early in life and build up a solid emergency fund, to use as a healthy alternative to a credit card or personal loan in a tight situation.
It’s time to look at creative ways to give your income a boost.
Never has there been more of an opportunity for people to diversify their earnings and be creative with sources of income. With online hustles, marketplaces and freelance work available at every turn, it could be a great time to get creative and work out what you have to offer on top of your day job, in order to boost your earnings. If a side gig isn’t your thing, perhaps work out how you might be able to negotiate a raise or consider a higher earning position in your career field. Your 30s is a great time to look at giving your income that next level boost and continue to invest for the future.
Get ready to get a home of your own.
Be prepared to own a home and work out how you’ll find your deposit, working out what home loan is best suited to your situation. It could also be the right time to consider insurance, and not only for your home. It is important that your family has the assurance and peace of mind, should you lose your income, be injured, sick or die. Get advice on whether life insurance or risk insurance is suitable to your circumstances.
At this time you could perhaps devise a 10-year financial plan to work out how you can get rid of debt while also perhaps plan for a new home or to invest in your career (further study or qualifications). Now is also a great time to work out what figure you will need in order to retire with the lifestyle you would like to have, so that you can put that plan into action early.
Have the ‘money talk’ and commit together to take responsibility of your finances.
If you have a significant other, it is crucial that you are on the same page when it comes to your views on money. So, it is time to have ‘the talk’. Talking about your finances within a relationship is obviously something that should happen no matter your age or stage with your partner.
Make time to talk about your goals for the future, work out a budget and talk about those things you both agree and disagree on. Keep the conversation nonjudgmental and understanding but take the opportunity to work it all out. Healthy finances are one of the most essential factors in a solid relationship, so make it a priority.
Do not be tempted to slow down your savings, you should now be looking at three times your current wages in retirement savings.
This is a crucial time to give yourself a financial health check. See your adviser to help you ensure that your investment portfolio is still meeting your requirements and expectations. You may consider reworking and rebalancing your portfolio, as well as selling off any underperforming shares and taking a look at your property portfolio, to see if it is still working for you.
It has never been more vital to take care of yourself and secure your future.
If you have not got some kind of life insurance at this point, now is the time to do it. As we get older, our health should be kept in high priority as health issues are more likely to develop. Injury or illness can potentially cause a huge impact on families, often bringing on financial stress and pressure, especially if the main income earner is in question. It’s crucial at this stage of life that you consider what type of insurance you need to cover you for life’s unexpected moments.
Is your family taken care of should something happen to you?
A will shows how your assets are distributed after you die. Without a will, the State dictates where your assets will go. If you have assets and loved ones that rely on you it is prudent to have a will. Consider seeking professional advice from a solicitor who specialises in Estate Planning matters.
Getting carried away with expenses could jeopardise the big picture.
It’s easy to assume that getting to this stage of life may mean a more relaxed and perhaps expensive lifestyle. No matter what your age or stage however, the budget should still be consulted before any big purchase is made. Your future retirement goals needn’t be sacrificed to drive the latest and greatest car or live in an expensive house. If you can be happy with a modest and simple lifestyle that you can honestly afford, then this will help you win in retirement.
Equip your kids for their future, while you continue to plan for yours.
The best thing you can give your child right now, is the financial education they need to be equipped for their own lives. We all want to give our kids the things they need in life, especially in their earlier years. However, the earlier you teach your children about managing money, the more likely good financial habits will come naturally to them over time. Talking about spending and saving openly as a family, as well as giving financial tools (such as a savings account) will not only help them in life, but help you keep your retirement plan on track, without being disrupted by expenses that could be handled by your older children (like phone and car expenses).
Crucial time for retirement advice – do you have five times your salary in superannuation?
At age 50, having five times your salary puts you on track for a comfortable lifestyle in retirement. But by 55, seven times your salary is prudent to ensure you retire on top. These amounts depend on your household income. If you do not have these figures saved in super, now is a crucial time to get financial help. Obtaining advice on your financial situation is essential to ensure you are on the right track towards a wealthy and financially carefree retirement.
If you haven’t already paid off your home loan, a decision may need to be made on whether focus should be put on paying this down, or whether you need to be putting those funds into your super. Being over 55 means you get the benefits of lower super taxes, salary sacrifice and transition to retirement allocation pensions. These are the types of discussions you should have with a financial adviser to ensure you are maximizing the benefits of the schemes available to you.
The hard work you put in right now is going to define how you live out the rest of your years financially.
At this stage you should have about 8-9 times your current income, so that by the time you are at retirement, you will have about 10 times your income in savings. Now would be your cue to take a good look at your portfolio with your adviser, to ensure you have a mix of investments, like shares, property, and term deposits, to reduce any risks and maximise your returns.
This is the most important time in your life to save as much as possible, knowing that you are so close to the end goal.
Living in your 60s might mean that a big family home is no longer necessary. It may not be financially savvy too, so it could be time to rethink your lifestyle and work out what kind of property will now suit your needs.
For such a monumental goal, it is imperative that you speak to a professional to get some advice tailored to your specific situation and needs. A financial adviser will be able to work out a strategy that is suited to your goals, needs and timeline. Call Elliot Watson Financial Planning on 02 4038 1623 and make an appointment to speak to an adviser today.
The information within, including tax, does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser.
The views expressed in this publication are solely those of the author; they are not reflective or indicative of licensee’s position and are not to be attributed to the licensee. They cannot be reproduced in any form without the express written consent of the author.
Elliot Watson Financial Planning Pty Ltd and its advisers are Authorised Representatives of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.