Retirement’s got nothing to do with age and everything to do with income, writes Andrew Baxter, founder of Australian Investment Education and author of
When we’re young, we feel like retirement is so far down the track it’s not even worth thinking about yet. That’s fair enough, we’ve got busy lives we get caught up in.
But what if I told you that there are things you can do now that could radically improve your financial prospects in the future? So much so that you could potentially double your retirement nest egg, if you make some good choices.
Let me share four steps that can help set you on the right path – and I’ll unpack that claim about doubling your retirement kitty so you know it’s not just too good to be true.
Remember, this is general advice and it’s always a good idea to get your own personal advice for your circumstance before making financial decisions.
Step 1: Don’t put it off like most people do
When we’re young, we feel like retirement is so far down the track we’ll get around to thinking about it someday.
Make that day today. Get started, focus on it, obsess about it and you can retire very quickly. The opposite, which I see all too often, is that feeling that you’ve perhaps left it too late and it’s hurtling towards you too fast.
Don’t put your head in the sand and go “I’ve left it too late, it’s time to give up now”.
Retirement’s got nothing to do with age and everything to do with income, so it’s worth looking at the small adjustments you can make now that could give you significant outcomes later. It starts with checking your super balance, using an online superannuation calculator to project your retirement savings, and generally learning how super contributions and investments work.
Step 2: Get more control
We’ve seen a groundswell of people moving towards self-managed super funds in recent years. The most recent ATO data shows that there are more than 625,000 SMSFs in Australia, with 1.1 million members. APRA (the Australian Prudential Regulation Authority) has reported a 7.5% increase in total SMSF assets over the past financial year alone.
Why this trend? Firstly, people are a little jaded with the performance of the superannuation industry after the damning findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Secondly, the returns aren’t spectacular. And thirdly, the fees are probably a lot higher than what should be.
So, getting more control, if appropriate for your situation, is key. Self-managed super funds allow you to take charge of your investment decisions and invest in property, shares and other assets.
Typically in the industry we look at $250,000 as the threshold for setting up an SMSF, which is often achieved through a couple going in together.
There are many benefits to SMSFs, ranging from low tax rates and greater flexibility, but it is important to note that you should only dive in if you’re got the time and a solid understanding of how it works and if it’s cost-effective for you.
WATCH: Australian Investment Education’s 4 tips to help you retire comfortably
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Step 3: Choose better investments
If you look at the allocation that most people have in their super or a managed fund, it’s very heavily skewed towards Aussie stocks with a very small exposure, relatively, to the US.
Why is that? Yes, there are many fantastic blue-chip performers in Australia, but too few of us are holding stocks in some of the world’s biggest and most profitable businesses.
Over the past 10 years, the S&P/ASX 200’s average rate of returns is around the 9% mark. In comparison, the Nasdaq-100 has returned in the mid-to-high teens. That is a significant outperformance.
So, it’s worth thinking about having exposure to the companies that are part of our daily lives – think Microsoft, Netflix, Apple, Starbucks, Google, Amazon, Lululemon, Uber. Some see the big tech companies as high risk, but they are where we’re living our lives now.
Now, everyone’s risk appetite will be different. But diversifying your mix to include better quality investments – more global businesses rather than focusing just here in Australia – can potentially double, or even triple your returns. As a cherry on top, the extra compounding on these investments could add even more wealth to your nest egg.
Step 4: Contribute as much as you can
Once you’ve attended to steps 1, 2 and 3, start contributing as much as you can into your super. Most people put the minimum in, and depending on your tax circumstances, it may well be better for you to continue doing so (especially if you’re a high earner).
But if you’re able to, making extra contributions can help boost your retirement savings because you’ll earn compounding interest over the years and may be able to reduce your tax.
Salary sacrifice is one option, in which you ask your employer to pay part of your pre-tax pay into your super account. It’s taxed at a low 15% and is especially tax-effective if you are earning a higher income.
And that’s just the tip of the iceberg. There’s so much more you can do to make your retirement nest egg a golden one, but all you need to know is that right now, you have more options than you even know.
Take these four steps and you’re off to a great start.
Want some help? Check out Australian Investment Education’s range of courses and coaching, mentoring and advisory services to help secure your financial future here. Andrew Baxter’s book,
This article is brought to you by Your Money & Your Life in partnership with Australian Investment Education.
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