The following general rule of thumb can be followed, however each individuals situation is different and you really should seek appropriate personal advice:
If you wish to retire on $65,000pa you will need $1.625 million capital as a minimum by retirement at age 65. (Assuming 25years of retirement)
Age 20 – 30
How to get there
- Aim to contribute 10% of your gross salary to super over the long term
- Get onto the property ladder first
- Build good savings habits
- Seek financial advice
- Make sure you know the hidden traps of your super and remember super is not just about the fees – you need to get your investment right.
How to make it last
- Check the fees and insurance premiums you are paying
- Retire with no debt on your home
- Once you have a property under your belt, start thinking about contributing more to super
- Learn to live within your means
- Save your next pay rise
- Know how your super is invested
- Remember that super is a tax system, not a product, and what you do with it is your choice.
Age 30 – 40
How to get there
- Have a written plan
- Pay off your mortgage as quickly as possible
- Use free cash flow to salary sacrifice
- Make smart asset-allocation decisions within your super
- Maximise your personal super contributions as retirement approaches
How to make it last
- Monitor your super fees
- Live to a budget now and stick to it even as your reduce your mortgage
- Consider transitioning to retirement via contract or part time roles to extend your working life
- Encourage good financial habits in your older kids by charging them board
- Use proceeds from downsizing to top up your retirement savings.
Age 40 – 50
How to get there
- Have the higher income earner salary sacrifice up to the maximum concessional contribution limit
- Have the higher income earner start a savings plan in the lower earning spouse’s name through a family trust
How to make it last
- Draw a pension at the minimum level. At 65 this is 5% of the super balance.
- Invest in an appropriate manner. This means long term stable investments that can produce a 7% earnings rate not just for the 20 years leading into retirement but throughout the rest of their lives.
- Keep some savings in cash. At retirement, have sufficient secure investment buckets either in cash or term deposits to cover pension payments for up to 5 years. This means that if there is a downturn in share market, you do not need to sell the shares.
Age 50 – 60
How to get there
- Salary sacrifice pre tax income to super
- Make post tax contributions to super from surplus cash flow or savings
- Commence super income streams (Transition to retirement pension)
- Enhanced structuring and use of super income streams
- Accumulate wealth in the concesionally taxed super environment
- Increase exposure to capital growth assets including Australian and international shares and property inside or outside super
- Accelerate debt reduction or decelerate debt reduction depending on individual circumstances (sometimes redirecting cash flow from debt repayment to other objectives can provide a net wealth benefit.
- Borrow for investment should the capital objectives not have a high probability of being achieved and the risk profile affords this strategy.
How to make it last
- Preserve the capital for the long term and resist spending too much on lifestyle
- Review financial situation annually to work out entitlements to the age pension
- Consider longevity risk
- Keep the correct asset allocation for annual draw down requirements
- Have sufficient capital in defensive assets to be able to meet pension payments throughout the cycle of a market downturn to help protect the portfolio over the long term
- Have a trusted advisor to help you negotiated the investment market cycles and social security landscape.
Posted in Accountant, Retirement