How to comfortably retire in your 50's
Saving for retirement is the best and the worst type of saving.
It is the best because you benefit from what Einstein reputedly called "the most powerful force in the universe" compound interest. And it's the worst because retirement seems so distant and far away that it’s easy to indefinitely delay planning for its arrival. Here are 10 ways to prepare, so you can retire comfortably in your 50s.
- Get engaged. Now
Most people are incapable of retiring in their 50s because when they reach that age they haven’t even begun to think about super. “It’s never too early to start thinking about retirement, but it can often be too late. The earlier someone starts taking action around their retirement, in almost every circumstance the more options they will have,” says Scott Ellis, Head of Wealth at HSBC Australia.
- Clear your debts
In the same way that compound interest works for you when you’re saving, it works against you when you’re in debt. Rather than earning interest on interest, you’re paying interest on all the interest you’ve already racked up. At the very least you should eliminate what’s known as “bad debt” such as credit-card interest. Some financial experts even say you should pay off your mortgage before you start to save.
- Go for growth
“The earlier you start, the greater the benefit from compound interest – and the greater your opportunity to take on more risk for more reward. So, for example, you could consider a high-growth superannuation option because you have the time to recover from any years with negative growth while still benefiting from the positive years,” Ellis says.
“The closer you are to your planned retirement, you can’t benefit from compound interest and taking on too much risk can jeopardise your retirement savings.”
- Minimise your fees
According to industry fund giant AustralianSuper, a worker on average wages could be $51,900 (or 10 per cent of their retirement balance) worse off over a 40-year working life if their super fund charges just 0.5 per cent more to manage their investment than a low-fee fund. Consolidating your super into one fund will also keep fees (and paperwork) to a minimum.
- Salary sacrifice
“Salary sacrificing into super is a good option, as this will increase the compound effect of growth as well as the benefits of the tax treatment of super contributions. It is important to be aware of the rules and restrictions that apply to your circumstances,” says Ellis.
AustralianSuper gives the example of a 35-year-old worker who begins contributing $50 a month extra to their super, who could end up with an additional $79,000 at retirement. A 25-year-old doing the same could save an extra $175,000. (Assuming an interest rate of 6.5 per cent.)
- Get the concessions
“While the number and value of tax concessions available have reduced in recent years, it is still worth exploring,” says Ellis. “They could include additional contributions in a single taxed year or combining concessions over multiple years, along with benefits for co-contribution if your spouse is not working – or not working much.”
- Insure yourself
Your most important income-generating asset is yourself. By taking out death, disablement and income-protection insurance you will help avoid a massive impact on your retirement savings goal should the unthinkable happen.
- Make your property pay
- Set goals and stick to them
Take a look at ASIC website moneysmart.gov.au, for debt help, budget, mortgage, and investment calculators and apps and guidance to build your wealth. You’ll be able to type your numbers into their superannuation planner and gain an idea about whether you’re on track for your retirement.
- Get compounding
“Compounding your savings means earning interest on your interest, and this builds every year. That means that every dollar you put away earlier in your working life will work harder for you each and every subsequent year. The incremental benefits can be considerable over time,” says Ellis.