By Yianni Tsimopoulos
Most Australians can help their retirement planning without having to find extra money. John Lennon once said that life was what happens when we’re busy making other plans. But sometimes it’s living that puts major plans on the backburner.
Let’s take retirement savings as an example. Most people understand that they’ll need to replace at least 70 per cent of their average earnings in retirement. Most reports show that an average couple needs around $1 million to live comfortably if their plan is to retire for 20 years.
Given the magnitude of this goal, you’d expect a certain focus on retirement savings amongst working people. But a survey conducted by HSBC revealed that 56 per cent of Australians have never saved specifically for retirement outside of super. Another important issue in the findings was that of the 25 to 49-year-olds, the general cost of living, followed by utility bills, mortgage repayments, credit cards and the cost of raising children were among the most important factors. Other issues greater than saving for retirement were medical bills, personal loans, holiday savings, rent, insurance, vehicle finance and renovations. Retirement ranked higher than saving for a wedding. So, retirement savings isn’t really ignored, it’s just that ‘life’ gets in the way.
What most Australians don’t realise is they can help their retirement planning without having to find extra money.
If you’re employed, your employer must put aside 9.25 per cent of your wages into a superannuation fund. So you’re already saving. That’s not the most important part – what you do with this superannuation that makes the difference.
Start by focusing. Tell yourself ‘it’s my money’.
Second, ensure your fund is not charging too much in fees. If you’re paying for an adviser, you should be utilising them more often. I often find when I ask the question ‘When was the last time you saw your adviser’ that the potential client will say ‘I can’t even remember his name’. Also, make sure you are not paying more than you have to. The difference between 1 per cent and 2 per cent of a $100,000 nest egg is $1,000. This is money you should keep in your own savings where it can compound.
Third, avoid trading-off potential returns in order to have ”risk free” savings. The difference between a ‘conservative’ option in a super fund and a ‘growth’ option can be the difference between earning 4 per cent and 9 per cent. On a $100,000 nest egg, that’s a difference of $5,000 each year. Young people especially should not be too conservative however make sure you understand the risk before you get into any particular investments.
At the same time, avoid chasing the fund with last year’s best performance. You’ll find the best performing funds by looking at how they measure over a three or five-year period.
Finally, make sure your insurance cover is actually covering you when you apply for insurance. Some insurances are expensive and may be unnecessary, others may be cheap, but do not provide you with any benefit if you need it. Saving money on life insurance through your super fund may be an option. For example, if you can save $500 a year in life insurance premiums, that’s more money in your retirement savings.
There is no magic solution with superannuation. Your goals become reality when you start to focus and pay attention. Not everyone can throw more money into their superannuation when life is getting in the way. But anyone can take an interest and make good decisions.
Yianni Tsimopoulos is the Managing Director & Senior Wealth Adviser of Nationwide Group of Companies.
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