This was published 6 months ago
Opinion
How to fuel up your retirement savings faster
Bec Wilson
Money contributorSomewhere in our 40s, 50s or 60s, each of us wakes up to the reality that retirement is not as far away as we thought. And a burning question we start to ask ourselves is “how can I get my savings retirement ready, and quickly?”
For anyone in that situation, there are seven good places to start, not all of them strictly financial. Let’s explore them, in order of the importance I place on each.
Being smart with your cash can help fuel your savings swiftly.Credit: Simon Letch
Work on your vision for the years ahead
I think the most important thing you can do to fuel your savings plan is to start building a vision of the years ahead of you, before and after retirement, and work to share that vision with your partner if you can too.
Some will scoff and say that’s a waste of time, but the reality is, pre-retirement and retirement aren’t what they used to be. Changes to our life expectancy in the last 50 years means we now have 25 to 35 years from the age of 60 to fill with living.
So build a vision that takes in things such as where you want to live and at what standard of living, what types of trips you wish to take, and whether they’ll be more active or more expensive in the earlier years of retirement, whether you hope to work through the years before and after retirement, and at what intensity.
Think about your values, skills and what you want to be doing with your time during these years too. Then, use that vision to fuel your hunger to focus on your retirement savings.
Really embrace compound investing
The whole premise of compound investing is that you begin stashing money into long-term investments as early in life as possible, so you let time do the largest amount of work for you.
As your balance grows, there’s a snowball effect where your money earns returns, and those returns earn more returns, and the cycle continues, even long into retirement. And whether you have five years or 20 before you retire, the effort to focus on compound investing can yield incredible results with not a lot of effort.
Maximise your superannuation opportunities
Superannuation in the accumulation phase is the bomb – if you leverage its potential. Essentially, super is just a highly tax-effective savings structure, requiring us to allocate 11 per cent of our salaries, and allowing us to pay in more as voluntary contributions if we can afford to.
If you want to accelerate your retirement savings, you’ll want to consider whether you can save more from your weekly, monthly or annual budget and get it into superannuation as a voluntary contribution.
Pleasingly, the government increased the caps on super contributions this week. From 1 July, you’ll be able to top your super up to a total concessional contribution limit of $30,000 per year, and a total non-concessional contribution limit of $120,000 per year. Every little bit we can get in helps drive greater compound returns.
Analyse how your funds are invested
If you have investments tucked away, whether they are inside or outside superannuation, and you want to fuel up your retirement savings – again, relatively passively – you should consider how they are invested.
Take a hard look at how much investment risk you might be willing to take to increase your returns year-on-year. The rule of 72 says that your investments will double every seven years if you’re getting a 10 per cent return on investment, or every 10 years if you’re getting a 7 per cent investment return.
Remember, risk isn’t always your friend in the short term, but if you can weather the downturns it can be a powerful tool in your belt.
Leverage the co-contributions scheme
If you are a low- or middle-income earner (your income is below $58,445 in 2023-24) you meet the criteria, and if you make after-tax contributions to your superannuation fund, the government will also make a co-contribution of up to $500 to support your efforts.
While that $500 per year might seem like a small amount, every little bit really does count if you have a smaller super balance.
Think about downsizing
If you’re an empty-nester with a large home, consider downsizing after the age of 55. The real benefit is felt if you’re eligible for the downsizer concession, which requires you to be 55 or older, have owned your home for more than 10 years, and to have lived in that home at some point.
Then you can whack $300,000 into superannuation tax-free, or $600,000 if you’re a couple. Smart thinking would have you compare the returns you might get from 55-65 in the real estate market with the returns you might get from compound investment in a super fund exposed to Australian equities and growth assets, and consider whether downsizing seems smart sooner or later in your life.
Explore the small business tax concessions
Many Australians will sell a small business as they approach and enter retirement, and one scheme that doesn’t get a lot of attention as a powerful way to get money into super is the small business tax concessions.
Rather than saving for retirement during their working lives, many small business owners instead use surplus funds to grow their business. The CGT cap exists to allow small business owners to make large contributions to their superannuation on the sale of their business assets.
Bec Wilson is the author of the bestselling book How to Have an Epic Retirement and host of the new podcast Prime Time with Bec Wilson. She writes a weekly newsletter at epicretirement.net.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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