It wasn’t that long ago that a $1 million superannuation balance was considered ample to retire on. But as the economic and investment landscape changes, so does our perspective on the future. Now that we’re in a low-interest rate and return environment, if you’re used to earning the average Australian wage (circa $80,000 per year), then $1 million in superannuation is going to fall well short of providing you with a retirement income stream similar to what you were earning.
Let’s consider a scenario where someone is earning around $50,000 as a starting salary and working to age 70. They would experience modest wage increases to be earning 25% above the national average salary by the time they retire. In today’s dollars, they would have contributed around $800,000 to superannuation over their working life (adjusted for inflation). If you also assume that they have paid off their home, they will have the equivalent of about 50% of their net disposable income when they retire. This will allow them to live and have a couple of luxuries in life, however it’s likely they’ll be feeling they don’t have a lot to show for years of hard work. It’s clear you’ll be ok if you put the basic 9.5% into super over your working life. But do you want to work your entire life to just ‘be ok’?
What are my options?
Depending on when you’re getting started, there are several options available to help you create the life you desire in retirement. You could put more into super, you could save into an investment, or you could gear up and buy shares or an investment property. Here are a couple of simple ideas for building up your nest egg.
Contribute more to superannuation
It’s a cliché among financial planners to say put more money into super, but it’s a great way to boost your balance, and you’ll pay less tax too. Make sure you have the right fund and that you’ve selected the right investment options that suit your stage in life and attitude towards investing. Bad investment returns and high fees can take the wind out of your sails, so you want to make sure you get them right.
Budget, save and invest
If you don’t have any money left at the end of the day, have a good hard look at what you’re doing and see what you can do to change that. If you have regular savings (or when you get them), then look at what you’re doing. You could be paying off debt, putting it towards super, buying some shares or servicing extra debt that you’ve used to purchase an investment property. If you want higher returns, you’re going to have to take on more risk by either investing into risker assets, investing more money, or both.
It’s never too early to start thinking about how to maximise your income in retirement. Take steps now to get the best chance at the lifestyle you want. A well-structured plan is going to allow you to pinpoint where the easy wins are and what actions are going to give you best bang for your buck.