Young Aussies need to safeguard their retirement now, according to finance guru
A finance expert has warned young Aussies to get their retirement ducks in a row and build a nest egg now, saying it will only “get worse over time”.
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Young Australians need to start getting their retirement ducks in a row, according to a leading finance expert, who says efforts to build a nest egg will “get worse over time” as the nation’s housing crisis deepens.
The grim warning comes as home ownership remains one of the most reliable indicators of whether or not a person will be able to have a comfortable retirement.
However, the reality is that Australia’s ever-tightening housing market leaves little hope for the thousands of – especially younger – people who are finding it harder and harder to get a foot in the door. Some young Australians have already given up on that great Australian dream.
Money-saving expert and author of personal finance book, Kill Bills, Joel Gibson told 9 News that changes to the terms of loans and banks extending loan repayment periods “almost guarantees [Australians] will have a mortgage at retirement” or will still be renting.
He said young Australians therefore need to start making proactive moves to save for a comfortable retirement when they hit 67.
The Association of Superannuation Funds of Australia (ASFA) has predicted an Australian couple will need $690,000 in superannuation for a comfortable retirement. Singles, meanwhile, will need a lump sum of $595,000.
However, for a more modest retirement, ASFA estimates couples and singles will need to save a bare minimum of $100,000.
The trouble with those estimates, like most efforts to accurately predict how much superannuation is needed for retirement, is they are calculated on the assumption the retiree owns their own home.
ASFA says those estimates also assume retirees are in relatively good health and have access to the Age Pension – which is limited based on their assets.
Other predictions consider where people live, how long they are expected to live, and how they want to live in their retirement, not to mention future changes to tax, the Age Pension, and inflation.
Some financial experts have suggested even following the ASFA estimates sets Australians up for a “horrible” retirement, and instead believe couples will need at least $1 million to live comfortably.
Mr Gibson told 9 News young Australians should consider making voluntary super contributions, or investing their money elsewhere to get a jump on their retirement savings – especially if they have decided they won’t buy a home.
He said they should get advice on their best option, whether that’s putting money into super, saving for a house deposit or investing.
“Superannuation is extraordinary. So much of our money goes into this thing that we don’t engage with until we’re in midlife because it’s so far in the distance before we get to do anything with it,” he told the media outlet.
“Obviously when you retire if you have assets that aren’t the home you’re living in you have the opportunity to liquidate those and/or live off income from them.”
Canstar finance expert Steve Mickenbecker told news.com.au in 2022 Australians could make “astounding” savings if they start doing it before they hit 35.
“Even a modest salary sacrifice delivers immediate tax advantages, and in the long-term the power of compounding, where you earn interest on interest, can result in an astounding growth in retirement savings,” he said, but added doing so ties the money up until retirement.
“This means they generally can’t use the funds to put towards buying a home or other unforeseen uses.”
Mr Gibson also noted opportunities to enter the investment market through shares or EFTs (exchange-traded funds) have opened up for young people, too.
“What it all comes down to is even when you’re still relatively young it is really important to have a plan, to look at some of these questions, talk to an expert and have a bit of a plan in place,” he told 9 News, noting that some super funds offer members free or subsidised advice services.
Originally published as Young Aussies need to safeguard their retirement now, according to finance guru
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