While it may seem like a lifetime away, and quite literally it is, it’s important as a young working adult to start thinking about your retirement plan. Getting serious about your retirement savings in your 20’s is one of the best things you can do for your future. The longer you have to save and prepare that nest egg, the better off you will be when you’re 70.
The Association of Superannuation Funds of Australia (ASFA) estimates that the lump sum needed at retirement to support a comfortable lifestyle is $640,000 for a couple and $545,000 for a single person
– and this is with the assumption that you will receive a partial pension from the government. This or about two-thirds of your pre-retirement income should help you maintain your living standards as you retire. Are you on track to have this amount when you retire?
If, like for many, this sounds like a far-fetched dream to you – especially considering the many Australians that had to access an early release of their super during the pandemic – then don’t panic just yet. Shoebox is here to guide you through some money-growing strategies for your retirement fund.
There are essentially three ways to grow your nest egg, which we outline below. These include:
- Through Super
Let’s dive in!
Save, save, save!
Saving is a life-changing skill to have. While the importance of this concept has been explained a million times over, many young people still don’t do it. This may be due to living above one's means, having an underpaying job, or simply because they were never taught when young
. Whatever the case, here are some simple strategies anyone can use to begin saving!
1. Budgeting is paramount
This can help you identify where you are spending your money and where you can cut back. It helps separate the essential from the excess – the needs from the wants. It also allows you to track your savings and can give you more control over your financial position. Creating a budget involves breaking down income and expenses. Most often people like to display this in a table (perhaps in excel, or even in a book). There are also many modern finance apps that help with budgeting, such as Pocketbook
2. Set goals
Some good financial goals to work towards include clearing debts, building an investment portfolio, and of course, growing your savings. To get serious about your goals and set them in motion, make them SMART goals – specific, measurable, achievable, relevant, and time-bound. This forces you to set time-frames and plan steps you will take towards reaching your goals. Again, there are some great apps out there that help you visualise your saving goals and motivate you to keep going.
There are various saving strategies out there – different methods work for different people. Here are some common saving methods.
- Put away a percentage amount. This works best for those who’s earnings fluctuate. You can’t put away a consistent amount each week if your pay is inconsistent – rather, say you’ll save 20% of your net pay each week (for example).
- If putting away consistent amounts, use a saving chart, planner, or app to help you track your savings. This will provide incentive for you to keep going.
- Set up a direct deposit into your savings account. The money will be automatically transferred and you won’t have to worry about forgetting – and you won’t have to physically depart from your money, which may be tough for some.
- For those that are dead serious about saving and want to take it a step further – select a high-interest account to direct deposit your savings towards. Often you will be unable to withdraw from these accounts within a certain time period for risk of losing interest/ money. Let this money accumulate and build interest over time and you will retire very comfortably!
To learn more about the various kinds of saving accounts and which will work best for you, talk to your personal bank.
Invest in The Future
Building an investment portfolio might sound like something that is reserved for business people; however, anyone can get into this. There’s plenty of avenues to go down as well – stocks, real estate, business ventures, cryptocurrency, etc. The most important part of investing is research – don’t go in guns blazing or you might end up losing a lot of money. First, step back and observe. Research who you’re investing in, their history and projected growth, and monitor their market position. Likewise, with real estate, observe the market and areas that are developing. A bigger risk does not always equal a bigger reward – play it safe until you’re ready to start experimenting and taking risks.
When your young, long term investing, in particular, is a smart way to grow money as your investment has time to grow and compound. Further, aggressive investing is smart for young people to get into as well as you can ride out the highs and lows of the share market because you have the time to withstand the fluctuations. Even with a loss, you have the time to recuperate. This is not always the case with older investors.
Investing in blue-chip shares usually provides more stability and steady (but small) growth over time. They also usually pay good dividends, and when young, reaping the benefits of dividends every 6 months or a year can be a nice reward for putting that money away for a while. These, however, are the more expensive shares to purchase upfront – but they’re more reliable in the long run. In general, make sure you diversify – different types of funds, different industries, etc. This saves you from being affected by a crash or, you know, a pandemic. We’re sure a lot of investors would have reconsidered their portfolio if they had the last 12 months to do over.
Feel Super About Retiring
As soon as you get your first job, you’re signed up to a superannuation fund. In Australia, it is compulsory to have a super fund, to make sure you are not left without any savings when you retire. However, many young people just generally accept whichever fund they've been designated and don’t give it a second thought. However, you’re very much allowed to change funds – further, you’re allowed to have a say about how your money is invested to optimise your return. You can allocate amounts of your fund to go towards low to high-risk investments to strategically grow your super fund
- If you’ve bounced around from employee to employer then it’s likely you have a number of different super funds. It’s not in your best financial interest to hold a number of super accounts as you will be paying fees on each of these. Consolidating your super is very easy – you can do this very easily through the ATO’s new online portal!
- Your work should be paying into your super anyway, but did you know that you can actually make voluntary payments? This is called a salary sacrifice and can be done with your pre or post-tax earnings (note: you can contribute more if you sacrifice post-tax). The beauty of this is that you pay less tax while growing your super. For salary packaging (sacrificing before you earn your income), it’s a good idea to speak to a tax professional before making arrangements with your employer.
How to NOT retire well…
While the influencer lifestyle is being sold to young people all over social media, it’s promoting some pretty poor money habits. Trying to keep up with the Kardashians is not realistic for most of us. Following influencers, trends, and luxurious lifestyles that are not attainable can set us up for an unstable future position financially. No one wants to stress about money, least of all in your golden years. Put your money towards something more rewarding.
As a young person, you should understand the power of compounding sums of money over time and the power that comes with short term sacrifices for long term rewards. Start learning about how to be smarter with your money today by following more of Shoebox’s helpful advice updated on our blog regularly