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Under 30? You should start working on your lung capacity, because there’s a very good chance you’ll live to blow out the candles on your 100th birthday cake. Thanks to medical and technological advances, the average life expectancy has almost doubled in just a few generations, and continues to grow. By that logic, those who pocket their last pay cheque at a retirement age of 65 could enjoy at least 35 employment-free years. But before you sit back and daydream about buying a caravan and chugging around Australia, have a think about how you’ll fund that long retirement.
It’s probably the furthest thing from you mind – who’s thinking about retirement when they’re busily trying to get qualifications, build a career and fulfil big dreams? Inconvenient as it seems now, getting fiscally literate will set you up for a comfortable future.
Many financial planners argue that you’ll need more than $1 million in super if you want to enjoy retirement. According to Dr Adrian Raftery, expert in financial planning at Deakin University’s Faculty of Business and Law, there are some simple steps that will put you ahead of the average Australian when the time comes to retire.
It might seem absurd to be planning for life in 2060, so it helps to set achievable targets. ‘You need short-term, medium-term and long-term goals,’ Dr Raftery explains. Short term, he suggests saving six months of living expenses in case you encounter temporary financial turbulence. After that, he suggests structuring a plan that allows you to save for medium-term assets, such as shares, and long-term assets including property. Dr Raftery recommends getting a financial planner to help plot a savings agenda. He says it’s important to select the right advisor: ‘Pick someone who’s about seven years older than you – someone who can understand what you’re going through financially.’
Dr Raftery says that although it can feel like we’ve got a lifetime to save money, we only have 40 years between graduating (assuming you complete a degree and start work at 25) and retirement at 67. One of the easiest ways you can start is to make voluntary contributions to your superannuation. ‘The money makes money with compounding interest,’ Dr Raftery explains. Paying an extra $20 to $50 per week would put you ahead by tens of thousands in the future. He says that you have more control than just waiting for your employer to deduct the funds from your salary. There’re a number of ways that you can manage your super so it delivers better returns. There are also tax concessions for making super contributions when you enter higher income brackets, so it makes financial sense to add to your fund because you’ll see the benefits in your tax return.
One of the easiest ways to get ahead is to simply spend less than you earn. Dr Raftery suggests cutting back on non-essentials, but admits that you have to be prepared for the lifestyle sacrifices: from reducing shopping and dining out to driving a practical vehicle. ‘When you’re 25 you want a flash car. After 15 years your car is worth nothing due to depreciation and wear and tear. Look at putting your money into assets that appreciate, not assets that depreciate,’ he says.
'After 15 years your car is worth nothing due to depreciation and wear and tear. Look at putting your money into assets that appreciate, not assets that depreciate.'Dr Adrian Raftery,
Deakin University
The other way to set yourself up for retirement is novel: don’t retire at 65. Dr Raftery predicts a future where many older Australians might continue to participate in the workforce so that they don’t unnecessarily dip into their savings. That’s not unreasonable – there are plenty of able-bodied 65 year olds who are both capable of working and want to do so.
The key is to have some foresight. ‘A lot of people have physical jobs, but they can’t lay bricks at the age of 70,’ Dr Raftery says. ‘If you’re in a manual job, think about up-skilling so you can move into management or an office-based role,’ he adds. Of course, if we choose our careers wisely, many of us will be happy to keep getting out of bed to earn a living well beyond the designated retirement age.
Financial planning and saving money is often easier said than done. Check out these tips on how to save money and take control of your finances to get the ball rolling.
Course Director for Financial Planning , Faculty of Business and Law, Deakin University
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