Superannuation stumbling blocks
What’s stopping you from saving for a retirement you can really look forward to? Take a look at these four common barriers to saving more super and make a plan for having all your goals and financial priorities in order.
1. Enjoying life to the full
Living for the moment is something that may come very naturally to you. Perhaps you’ve always been comfortable living month to month on your salary, seizing opportunities to try or buy something new. After all, you can’t take it with you. Saving for retirement might seem like putting money away for a future that’s distant and unknown and can’t compare with having the chance to enjoy your life and income in the present.
But if you’re in the habit of enjoying life to the full now, you’ll probably want to carry on doing so after you’ve stopped earning an income. Take time to look at what you’re spending now and then compare it with the income you can expect from your super balance when you retire. If you just rely on your employer contributions will you have enough? A financial planner can help you with a plan to build up your savings gradually and still keep enough day-to-day budget for the things you enjoy. It’s a great way to make sure you can keep living in the style you’re accustomed to in retirement.
2. Doing away with debt
Debt can be one of the biggest expenses you’ll ever take on. Your mortgage alone can cost you thousands in interest throughout your working life. It definitely makes sense to pay off debt as soon as you can, particularly when interest rates are higher like credit cards and personal loans. Reducing the most expensive loans and liabilities first is a good starting point and saving on mortgage interest by getting ahead on payments runs a close second.
But bear in mind that a house, unlike super, is not an asset you can earn income from, unless you rent it out. If staying in your home after you retire is important to you, selling it to give you an income won’t be an appealing option. Coming up with a plan that allows you to build up your super balance and work towards being mortgage free will give you the best of both worlds. You’ll have a comfortable, familiar home plus enough money to enjoy your time spent living there.
3. Kids come first
If you have them, kids probably top the bill as your biggest lifetime expense. And rightly so, as no matter how attached you are to your home, your children are the centre of your world and you’ll want to offer them the best sort of life you can. While money isn’t the only way to support them, it can make a big difference to the education, experiences and other opportunities you can afford on their behalf.
But all those golden opportunities for your kids will come at a high price if you can’t provide for your own needs in retirement. So saving for your super helps them as much as it helps you. A decent retirement income means you can remain independent as you grow older and pay for your own care, so they won’t be obliged to look after you, financially or practically. If they are in a position to help, it can be out of their genuine care rather than your need.
4. I’ll never have enough
Saving enough to live on for a couple of decades is a big ask. Sometimes, when we’re faced with such an enormous commitment, it can be easier to just shrug it off as something that’s just too hard to be worth making a start on. Even figuring out just how much money is involved seems challenging enough, without actually having to budget for the savings you’ll need to make.
If running the numbers for your ideal retirement income and super savings plan is beyond you, consider salary sacrificing as a way to build up your super by stealth. Thanks to potential tax concessions on contributions from your gross salary, and the power of compounding returns, even a small monthly contribution can make a significant difference to your super over time, with much less impact on your current take home pay and cash flow. And the sooner you start, the better your chances of accumulating enough super for a secure retirement, with very little effort.
Whatever your priorities are, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on getting the balance right between spending on your immediate needs and saving for the future.
Online source: Produced by The Financial Financial Planning Association of Australia and published on 04 July 2017. Original article.