Picture your retirement. Do you see cocktails on a beach in Thailand? Grandkids chasing each other across your immaculate lawn? Peace and self-actualisation? Or do you just feel anxious about whether you’ll even have enough money to retire? If it’s the latter, you’re probably in the majority.
Last week’s report from Vanguard found only 30% of the more than 1,800 Australians surveyed are highly confident they’ll be able to fund the retirement lifestyle they want.
It suggests even our super system, the “envy of the world”, as Federal Treasurer Jim Chalmers called it a few weeks ago, is struggling to keep up with how expensive everything is getting.
“Higher housing costs, bigger debts, and cost-of-living pressures are changing what retirement looks like, and what it will take to fund it,” Vanguard Asia Pacific Managing Director Daniel Shrimski said.
If you relate, Vanguard has tried to help with a list of five actionable factors its analysis found most correlated with higher confidence in retirement. They don’t include getting promoted or winning the lottery, and there’s one small change that could boost a young person’s super balance by around $77,000!
1. Have a retirement plan
You’ve probably heard proper planning prevents, um, poor performance. And while you probably can’t control everything about your golden years, developing a plan was the biggest indicator of feeling good about retirement among the survey respondents. All that might mean is knowing how much you’ll need for the retirement you want, and how that can be achieved. Super simple, but nearly half of working age Aussies surveyed don’t have a strategy, and only 28% considered their own retirement strategy ‘well planned’.
2. Get more financially literate about retirement and super
Learning about and paying close attention to your super can pay off. You might think this seems fairly self explanatory and possibly an example of correlation not equaling causation. But one small change could leave a typical 25-year-old around $77,000 better off at retirement.
Vanguard made an eye-catching finding: While more than a third of Australians were ‘not very’ or ‘not at all’ aware that superannuation funds can charge multiple fees, minimising costs charged inside a fund can impact retirement balances significantly. In fact, an extra half a percentage point in fees could reduce a 25-year-old’s super balance by 12.5%–or around $77,000–by the time they exit the workforce.
(That’s based on a $83,200 salary, a starting balance of $24,004, and a retirement age of 67, alongside other assumptions).
3. Learn how super and the Age Pension can work together
Part of having a solid retirement plan is understanding how superannuation income can be combined with the Age Pension. Fortnightly pension payments can supplement your superannuation income, but you’ll need to pass means tests—you might be ineligible for the pension if your income or assets exceed certain thresholds.
Maximum Age Pension rates will increase later this month, with singles soon able to receive up to $1,237.70 per fortnight, while couples could get up to $1,866 a fortnight.
But alongside payments, deeming rates will also rise next month. Deeming rates are applied to assets held by would-be pension recipients, with their value ‘deemed’ to be earning a set return. If that assumed return puts your income over the threshold, you might receive a reduced pension, or find yourself ineligible entirely.
Once you're over a certain age, your super balance may be included in the asset test, alongside other things like savings account and term deposit balances, share portfolios, and investment properties.
4. Consider extra super contributions
What would you do if you found yourself with an unexpected sum of money? While, “I’d just put it in my super,” might be among the most boring possible answers, it also could be a sensible one.
If you put $10,000 into your super now and earn an average annual return of 8%, it could grow to be worth about $46,600 in 20 years’ time. That’s subject to fees and taxes of course, though super contributions can be taxed at a lower rate than other income.
Bear in mind, there’s no ‘right’ way to manage your money, and it’s always best to seek advice if you’re unsure of the best way forward. In the meantime, there are plenty of free resources out there to help you learn about the benefits and drawbacks of voluntary super contributions–which could help boost your finance knowledge (see tip #2).
5. Engage with your super regularly
Vanguard’s analysis found survey respondents who engage with super at least every six months were more likely to feel confident in their retirement outlook.
That doesn’t necessarily mean obsessively checking your balance or changing investments all the time, but simply having an idea how your retirement savings are going, what you’re invested in, and whether you’re on track to hit your goals.
The super fund suggests checking in and making sure your employer is paying your super properly, your investment options match your needs and preferences, and fees and costs are in line with your long term goals.
