There’s a time bomb waiting for some Aussies, as a $2 trillion wealth gap means they can’t afford to retire – but there’s a smart way to overcome it.
Aussies are heading for a future of financial shock as they face retirement incomes significantly lower than their current salary.
According to the Australian Financial Services Council (FSC), as a country we face an income deficit of more than $2 trillion†
But what can you do about it?
Unfortunately there is no panacea solution to be good luck with your money† There isn’t one set of steps that anyone can follow that will guarantee the results they want, because the right moves for you depend on you.
What is important to you? What will happen to your money? What do you want your life to look like in the future?
Here are three common challenges everyone faces when trying to get ahead with their money.
There’s so much noise out there making a smart money move. Whether it is to investmoney strategies, property or tax, the options are overwhelming.
There are a lot of conflicting opinions, mixed messages and hidden agendas – it’s hard to know who to listen to or who to trust.
The next challenge you will face is finding the perfect balance between getting ahead with your money and living the lifestyle you want. And it’s not easy.
We all want it. Living in a good house in a good location. Ability to spend on travel and experiences. Working in a job that makes you happy. These are all things that come at a cost, and it’s challenging to strike a balance between what matters most here and investing for the future.
FOMO and FOMM
Psychology often works against you when it comes to investing and decision making. You suffer from the Fear of Missing Out (FOMO), and especially when making investment decisions, you don’t want to be the one left behind.
But you also suffer from the fear of making a mistake (FOMM) that can be crippling. You work hard to build up some savings and investments, and when it comes to putting that money to work, you don’t want to do something stupid that costs you a ton of money.
What is the result?
The ultimate result of these challenges is that you get stuck. You don’t necessarily have to do nothing, but often you get stuck just doing the same things you did in the past – often missing the opportunity to make your money work harder and get more out of what you’re doing now has.
This passivity is one of the main drivers of Australia’s wealth gap, and something you have to overcome if you want to avoid being part of these statistics.
How to go further:
Spin your super
Your build super gives you a lot of tax benefits today, and money within super funds can grow faster because of the low tax rates within super funds.
When it comes to meeting your future expenses, super also has the great advantage of essentially having your money “locked in” until you reach retirement age. This means the money is there when you need it.
Under the current super rules, you can contribute up to $27,500 each year (including your employer super contributions) to your super fund and claim it as a tax deduction† This can significantly lower your tax bill and speed up how fast your super fund grows.
If you want to build up your investments to eventually replace your paycheck, you need to save and invest a certain amount of money today. If you wait a month, a year, or five years, the amount you need to save increases over time.
Your goal should be to set a clear goal for how much money you need to retire and the income you want in the future. The rough rule of thumb here is that you should be able to generate income of about 5 percent from your investment assets, so if you have a stock portfolio worth $1 million, it should give you an income of about $50,000 per year.
Once you have your number, you will want to see where you are now and how your investment wealth is expected to grow in the future if you continue to do what you are doing today. This will help you understand if you need to make changes to how much you are currently saving and investing.
If you’re handy with a spreadsheet or one of the available online calculators, you may be able to do it yourself, but given the importance of this piece, don’t be afraid to enlist some support here if you need it.
So that you don’t have to catch up in the future, take the time to look ahead at the financial path you are on. This way you can assess how well you are following the trail and what you need to change to end up exactly where you want to be.
Borrowing to invest is a strategy that can boost your wealth building and help you reach your wealth building milestones faster. It comes with risks, so you need to be smart about your planning around this, but using good debt wisely can be a huge help when it comes to closing your potential retirement deficit.
When borrowing to invest, it is important that you carefully choose a good asset or investment that will actually grow and produce the results you are looking for. You should also make sure that you have a good risk management and risk management plan in place so that you don’t fall short.
Take the time to understand what you can do to close the potential retirement gap for you, then take action.
Educating yourself is the key here, to get through the trap of idleness and build confidence in your approach. Your money is a muscle that you build over time.
If you do this right, you can come first financially and work toward your own version of financial success — and avoid settling for less in the future.
Ben Nash is a financial expert commentator, podcaster, financial advisor and founder of Turning wealthand author of the Amazon bestselling book ‘Get Unstuck: Your Guide to Creating a Life Unlimited by Money†
Ben has just launched a series of free online money education events to help you get on the first financial foot. You can view all the details and reserve your place here.
Disclaimer: The information in this article is of a general nature and does not take into account your personal goals, financial situation or needs. Therefore, you should consider whether the information is appropriate for your circumstances before acting on it, and seek professional advice from a financial professional if necessary.