Whether you’re thinking of leaving the workforce within the next 10 years, or a little later, you should be taking a hard look at your savings and working out if you’re on track for the retirement you want to live.
With more than half of Australians over 65 fully self-funding their retirements, as reported by Challenger, achieving a financially secure retirement may be easier than you think. Below, we’ll discuss a few savings tips to help you prepare your finances for when you exit the workforce.
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1. Work out how much your lifestyle costs
To understand how much you really need for retirement, it’s a good idea to consider your personal costs and lifestyle demands. Work out how much money you need to live your current lifestyle, as well as what you’ll need for retirement.
Your current lifestyle costs are made up of your regular expenses – rent or mortgage repayments, bills, weekly food costs, etc. – while your retirement lifestyle should take into account any persisting expenses as well as the money you’d like to have to achieve your goals, such as travelling or buying your dream car.
Build a budget that helps you continue to live the way you do now, while still putting money aside for your retirement. You may find it’s necessary to make some sacrifices in the “now”, but knowing how your life can improve once you’ve retired can be a motivation you need to get through it.
However you plan to live, you need to know what it will cost you and how you can achieve it.
2. Reduce your lifestyle costs
Saving for and affording retirement can be much easier when you can reduce your costs now or once you’ve retired. Housing expenses are the most obvious example of this. If you’re currently paying a mortgage off, consider when you expect to have finished doing so. It may be worthwhile to increase your repayments now or refinance your loan to ensure that once you reach retirement, you’re living mortgage-free. Invest Blue has a dedicated lending team as well as an advice team that can work with you to refinance your loan and paint your perfect retirement picture.
This can help to create some protection against changing interest rates once you stop working, while also freeing up your retirement income for
more fun things.
3. Review your super fund
For people over 50, it’s generally better to protect what you have than open your investments up to increased risk. For this reason, most people will usually choose a conservative super fund, assuming they have a lower risk profile, thereby sheltering their investments from changes in the market. It’s a good idea before making any big decisions to meet with a Financial Adviser to discuss your ideal retirement lifestyle and superannuation options.
It’s important when reviewing your superannuation to look under the hood of the super fund and ensure that the asset allocation is what it’s advertised as – don’t assume a fund will provide lower risk just based on its title.
Two funds may appear the same – but look a little closer to see how different assets can protect your retirement savings.
4. Make the most of concessional contributions
If you’re still working, consider making larger salary sacrifices to boost your super. Even on an above-average salary of $100,000, your employer super guarantee would only use $9,500 of your annual concessional contributions cap (based on 9.5 per cent super guarantee and $25,000 contributions cap). That means you could sacrifice as much as $15,500 of your salary to boost your super, save on tax and better prepare for retirement.
Salary sacrifice is often a better way to save as you near retirement, rather than rely on higher risk investments. For example, let’s assume you have not paid into your superannuation using salary sacrifice and begin to do so. Even a small salary sacrifice of 3% can be more impactful than a higher returns account and without additional risk.
Let’s take this example based on a salary of $100,000:
If in a year your employer contributes $9,500 and you make no further contributions and your rate of return is 8%, then you will achieve $10,260 into your super.
If in a year your employer contributes $9,500 and you contribute $3,000 (3%) and your rate of return is 4%, then you will achieve $13,000 into your super. If you build this amount up over several years, you will earn a lot more in your superannuation account. Talk to an adviser to find out more about planning ahead with your super, and how to make sure you have enough.
5. Go forward with a plan
Meet with a financial planner. Not only will a planner help you review your super fund, identify your assets and assess what you need for retirement, but they’ll also help you clarify your goals and build bespoke strategies that help you achieve them. The planners at Invest Blue know how intimately finances and every other part of life are linked. We understand that your goals are different from your neighbour’s and we make it our duty to learn about you and provide the tools to empower you for a comfortable retirement. We also help you identify what this is, for you.
For more information about our retirement planning services, reach out to Invest Blue today.
For more information about our retirement and financial planning services, reach out to the team today.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.