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Preparing for retirement: Why winging it won’t fly

Tags Retirement Savings Retirement Planning
Category Retire

Crashed kite

Do a search on the internet around the subject of ‘how much is enough for retirement’ and you’re likely to get a mixed bag of results. Regardless of what stage of life you’re at or what you’ve put aside, preparation is key to ensuring you’re in a good place.  With this in mind we’ve created a basic guide of things to watch:

Australians preparing for retirement have been warned: even a million dollars in superannuation may no longer be enough.

According to the latest report from accounting group Deloitte1, a 30-year-old worker on an average salary of $60,000 a year will accumulate $1.1 million in super by the retirement age of 65, but even this amount would only sustain a comfortable retirement to the age of 77.

For those close to retirement, there is even less time to accumulate super to fund your expected lifestyle. How can those with mixed savings records boost their super balances?

Big spenders

You have a pile of credit cards, car loan, mortgage and other non-deductible debts that keep increasing, and a super balance that could barely pay them out. No matter whether you are earning $200,000 or $50,000, it’s time to start living within your means.

“The first step is to reduce your spending. Ideally you should spend 70 per cent of your income on daily living, 20 per cent on savings for holidays and major expenses like a new kitchen or car, and 10 per cent towards your retirement,” suggests Brett Stephenson of Caloundra Financial Planners.

“Think long and hard about what your ideal retirement would look like. A good adviser will help you create a long-term plan suitable for your unique circumstances, and ensure you stick to it.”

Drawing up a budget will help identify areas where savings can be made. If you have a smartphone, download ASIC’s TrackMySpend app to track spending and stay within your limit2.

Step 1: Track spending.

Step 2: Draw up a budget and stick to it.

Step 3: Work out your retirement goals and get professional advice.

Steady savers

Capable savers are familiar with the magic of compounding, which automatically grows wealth through reinvesting interest payments. For example, an initial deposit of $10,000 invested at five per cent, will generate $2,834 in compound interest after just five years.

Another method of boosting super balances is by salary sacrificing, which entails asking your employer to pay some of your before-tax salary into your super fund. The benefit is that these contributions are taxed at only 15 per cent, but be careful not to exceed contribution limits.

You could also consider a voluntary after-tax contribution by simply depositing funds into your super account. These contributions are not taxed when the fund receives them, since you have already paid tax on them, and you may even be eligible for a matching contribution from the government.

Other methods to boost your super balance are finding funds that pay lower fees, putting your money into less conservative investment options or high interest savings accounts, or retiring later so there are more funds to play with.

Step 1: Consider salary sacrificing.

Step 2: Make after-tax contributions.

Step 3: Invest in high interest super savings accounts and choose your fund carefully.

By acting now, you can ensure your retirement lifestyle lives up to your expectations and you do not outlive your savings.