15 July 2013 Five ways to improve your retirement savings

One of The Beatles, John Lennon, reckoned that life was what happened when we’re busy making other plans.

But sometimes it’s living that puts major plans on the backburner.

Take retirement saving. Most people understand that they’ll need to replace around 70% of their average earnings in retirement. An average couple needs in the order of $1 million to live comfortably for more than twenty years of not working.

Given the size of this goal, you’d expect a certain focus on retirement savings among working people. But in a survey we did at Yellow Brick Road during June, we found that saving for retirement ranked 12th in priorities out of 16 financial issues.

The most important issue for our sample of 25-49 year olds was general cost of living, followed (in order) by utility bills, mortgage repayments, credit cards and the cost of raising children.

Other issues greater than saving for retirement were medical bills, saving for a holiday, personal loans, rent/board, vehicle finance, insurance costs and paying for renovations. Retirement ranked higher than saving for a wedding.

So, retirement savings isn’t really ignored, it’s just that ‘life’ gets in the way.

However, most Australians can help their retirement planning without having to find extra money.

If you’re employed, your employer must put aside 9.25% of your wages into a superannuation fund. So you’re already saving. But it’s what you do with this superannuation that makes the difference.

Start by focusing. Tell yourself: “it’s my money.”

Secondly, ensure your fund is not charging too much in fees. You shouldn’t pay more than 1% per annum to have your savings managed (yet many do). The difference between 1% and 2% of a $100,000 nest egg is $1000. This is money you should keep in your own savings where it can compound.

Thirdly, avoid trading-off potential returns in order to have ‘risk free’ savings. The difference between a ‘conservative’ option in a super fund and a ‘growth’ option can be the difference between earning 4 per cent and 9%. On a $100,000 nest egg, that’s a difference of $5000 each year. Young people especially should not be too conservative in their investment choices.

At the same time, avoid chasing the fund with last year’s hottest performance. You’ll find the best performing funds by looking at how they measure over a three- or five-year period.

Finally, save money with lower pricing on life insurances through your super fund. If you can save $500 a year in life insurance premiums, that’s more money in your retirement savings.

As with all important investments, there are no magic solutions with superannuation. The point I make is that your goals come closer to reality when you start to focus and to pay attention.

Not everyone can throw more money into their super when life is getting in the way. But anyone can take an interest, compare funds and make good decisions.

Reproduced in full with permission: Property Observer Five ways to improve your retirement savings 8 July 2013

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