If you are a young adult, it can be tempting to think about retirement as ‘something to worry about later.’ But the financial decisions you make today each have an impact on your long-term future.
Here are the steps you can take to plan for the future – regardless of your age.
Calculate What You need to Retire
The Association of Superannuation Funds of Australia (ASFA) benchmarks an annual budget needed by Australians for retirement. They define a comfortable retirement as one which includes a good standard of living, private health insurance, eating out a few times per week and the ability to afford items such as electronic equipment and quality clothes. A modest retirement is one which covers basic living costs and may include a limited number of the extras above.
Retirement income planning is important. The ASFA estimates that in order to lead a comfortable life during retirement, single people will need approximately $43 000 per year, while couples will need approximately $60 000 per year. The ASFA’s recommendation for a more modest retirement is $23 767 for singles and $34 216 for couples. You can also use this super and pension age calculator .
These figures are adjusted quarterly for inflation, they are only considered a guide. Both budgets also assume that the retiree is relatively healthy and owns their own home outright.
How much you will need in total to retire will depend on your desired lifestyle, and what age you want to retire. The sooner your retire, the more money you will need to have saved aside.
Take Control of Your Superannuation – Do Not Ignore It!
Understanding what Superannuation you’re entitled to and when your employer is required to pay it is a crucial step in maximising your opportunity to retire comfortably.
If you work in Australia and earn $450 or more per month or more, your employer is legally required to pay a Superannuation Guarantee Rate. This payment should be made quarterly and is should be 9.5 percent of your total earnings during that period.
When your Super is late or unpaid, you miss out not only on the raw amount owed but also on the compound interest generated by your Super Fund. If your employer has been found not to be meeting their superannuation obligations, they are required to rectify this by paying the total amount owed in addition to a penalty paid to the ATO. However there is currently no law that requires employers to compensate for lost compound interest from the period of unpaid super.
This is why it is important to ensure that you are being paid your superannuation on time.
Find Lost Super and Consolidate
According to the Australian Taxation Office (ATO), Australians had around $18 billion of lost superannuation as at 30 June 2017.
Many young adults have worked in a series of jobs across a range of different industries, opting for the industry superannuation each time. This can result in your super being spread across different funds. If you have multiple Superannuation accounts, it’s time to consolidate.
This will saves costs, as you will only be paying one set of fees. It will also reduce paperwork and make it easier for you to keep track of your super balance.
How to find your lost super
- Create a myGov account at www.my.gov.au, then link the ATO to your account.
- If you already have a myGov account, just log in and click on the ATO section.
- Go to the ‘Super’ tab. In this section, you can:
- see details of all your super accounts, including any you have forgotten about
- see details of all your super, including super the ATO is holding on your behalf
For more information, go to: www.ato.gov.au/superonline.
You can also call each of your super companies to transfer the super balance to your current super or you can also call ato and take their help to find lost super.
Monitor Your Super
Monitoring the performance of your superannuation over time can help you compare funds and make good decisions about your retirement savings. This is useful when you are choosing a fund, when you are consolidating, or when you are considering changing super funds.
It’s important to remember that while superannuation performance will change from year to year, the long-term performance is what is important.
Assess the fund’s performance over at least 5 years – superannuation is a lifetime investment and short-term figures don’t give you a sense of the fund’s performance for the long-term future.
When evaluating your funds’ performance, make sure you are comparing it with similar funds investing in the same areas. Check out the target set in the fund’s product disclosure statement and determine whether or not the fund’s return matches up.
If you are considering switching funds, ensure that you have thoroughly researched the fund you are changing to – understanding how it has performed historically and how the fund is expected to perform in future.
If you are in a good position financially, consider investing some of your money in assets such as shares and property. This is a fantastic way to increase your wealth over time and increase the funds that will be available to you during your retirement.
Remember that it’s always safer to diversify your investments to help reduce the volatility of your investment portfolio. Seek financial advice to help you make the best long-term investment decisions, and understand how to weigh the risk of an investment against its potential returns.
Create and Review your Budget
A great way to save more and avoid financial difficulty is to keep track of how much you are spending across a range of categories.
For example, a budget may help you weigh costs of different modes of transport, or give you a sense of how much you spend eating out compared to buying groceries. This can help you identify ways where you can reduce your spending and put more away for your future.
Use online tools to compare what you are spending across each category with the average individual or household. While there is no wrong or right way to budget, this can better inform your decisions and evaluate whether or not there are any non-essentials you are willing to sacrifice in an endeavour to save, and how this might pay off in the long-term.