As a youngster, it is tempting to spoil yourself when you receive your salary, especially since it’s your hard-earned money, right? While there is definitely space for this kind of thinking, some forethought needs to go into what you’ll do with your finances as well. Particularly planning for your retirement.
Now, we understand that it might seem lame to have to plan for something 40 to 50 years down the line, especially since you’re not promised that you’ll ever see that money, but planning for your retirement is essential.
In this article, we’ll cover why planning for your retirement is so important and how you can do it successfully.
The importance of saving for your retirement
In Australia, the statistics surrounding retirement plans are somewhat concerning. Statistics show that one in two Australians are unsure whether their retirement savings will last during their retirement, with roughly 40% of Australians saying that they’re unsure about their retirement plans altogether!
Now, while using the money for your immediate benefit might be appealing, the results of not planning for retirement well are less appealing. For example, because of the lack of planning, individuals who should be retiring need to continue working to earn an income to support themselves. The impact of this has a domino effect on the rest of the economy as well.
As a result of the older generation working for longer, newer job opportunities don’t open allowing younger employees to take them, leading to less available jobs in the economy and more people looking for work. However, those who plan for retirement early are able to retire comfortably without relying on their children for support or the need to continue working.
Tips to Help You Successfully Plan for Retirement
Planning for retirement requires a decent amount of forethought and calculations. For that reason, many people resort to getting advice from a financial planner or advisor to help them plan for retirement. That said, it’s still helpful and suggested to know what you’re getting into. So, here are some tips to get you clued up:
1. Know the age you’re working towards
People can start accessing their retirement as early as 55 years old. That said, the most common age people set for their retirement withdrawals is between 60-65 years old. This usually corresponds with when they stop working or are no longer able to work. For a super, the withdrawal date starts at the age of 60.
2. How much would you need to retire comfortably?
Age isn’t the only factor that you need to consider when you should retire; you also need to consider how much you’d need to live when you retire. Every year, prices shoot up with inflation, making it more expensive to maintain today’s standard of living. Now, fast forward 30 to 40 years and consider what the cost of living will be and how much you’d need. What’s great is that if you ask a financial advisor, they’d be able to work this all out for you based on the current rate of inflation.
Once you have a rough idea of how much it’ll cost for the same standard of living when you’re 65, then you can set your monthly instalments appropriately.
3. Understanding your income options for when you retire
When you retire, there are three income options that you can choose from depending on the retirement package you choose to use. These options include superannuation, the Government Age Pension, and any property or other assets that you can get an income for.
Superannuation
An AustralianSuper is a government-made program implemented to help employees save for their retirement. When you reach retirement age, the superannuation doesn’t need to be withdrawn all in one go, but rather, you can receive a set salary from it for the rest of your life or until it runs out.
Government Age Pension
The Government Age Pension is another initiative designed and implemented by the Australian government. This pension fund is designed to support the basic living standard of Australians over 65. In essence, the GAP covers the basic people need to live on by supplementing their salaries. An age requirement, income and asset test must be done for you to be considered eligible for this pension.
Assets
Finally, you can live off the income that you receive from assets like investments or properties. If you have your own personal savings, an estate, or shares, this is a great way to build passive income that could sustain you in your old age.
4. Ensure you have the right insurance cover
As you get older, life covers, and medical insurance begin to get more expensive. This is because your health risks tend to get higher as well. It’s important to ensure that you have the right health cover for you. This might mean that your current insurance level covers either too much or too little; either way, it’s important to review your insurance needs as life develops to ensure you’re well covered in all aspects.
5. Get advice if you need it
Planning for retirement from a young age is a great way to set yourself up for a comfortable retirement. But it can also be confusing if you’re unsure of what to do. Getting advice from a financial advisor or planner to help plan for your retirement is the best way to ensure you get the help you need and plan effectively for when you retire.
Final Thoughts
Once you’ve set up your retirement plan with a financial advisor you’re free to spoil yourself now and then with your hard earned salary. At least you know that your future is now taken care of!
