Andrew Zbik, Senior Financial Planner
Are you young? Finally settled into the start of your career. Enjoying seeing your salary increase? Have you just bought your first unit to live in?
If you said yes to all of these, listen to what I am going to say next. Don't follow in the footsteps of your parents because a lot has changed since they were your age and faced the same decisions. Start planning for your financial future now.
What do I mean? Let's look at an example for a young professional couple. I'll call the couple Victor and Verity Young.
- They are aged 30 and 28 respectively.
- Earn $80,000 each
- Have just purchased their first home unit valued at $750,000 after finally saving a 20% deposit and have a $600,000 home loan.
Even with compulsory superannuation, if hey do no further financial planning from here Victor and Verity will only achieve enough wealth to fund half of their retirement. The Australian Superannuation Funds Association says a couple needs $60,000 to live a comfortable retirement.
However, anecdotally, I know this is not enough if you wish to travel and pursue a few interest that cost money outside of usual living expenses. In my opinion, a couple living in Australia needs around $85,000 per annum to live a comfortable retirement that allows some international travel and some hobbies that may cost a few more dollars.
Think about this too: Victor and Verity are likely to live to the ripe old age of 100. So, if they are aiming to retire at the standard 65th birthday, they will spend almost as many years in retirement as they did working. Don't rely on the Commonwealth aged pension to help!
In today's dollars, Victor and Verity would need $1.7million to fund a retirement income of $85,000 per annum. Factoring inflation, in 35 years'time, that would be $4 million.
So, what can they do?
Having just bought their first home, cash is tight, and they don't have much equity yet. But here are a few things they will need to do over the next few years that may help.
- If they can start a regular investment plan into an indexed fund of say $100 a week that will achieve an extra $115,000 of capital at retirement.
- Paying off their home loan faster will help to create an equity for investing. When people have a non-deductible home debt - I generally suggest they prioritise paying that down rather than making extra contributions to Superannuation.
- When they do have some equity in their home, if they can buy an investment property worth around $500,000 - this will almost close most of their short-fall over the next 35 years. This is because property is a suitable asset to leverage with borrowings over the long-term.
- As their incomes increase, keeping a habit of making monthly contributions to an invested portfolio will also have an impact. If they can get to the point of making regular monthly contributions of up to $500 that will create almost an extra $575,000 of capital at retirement.
These are just some basic ideas but they're ideas that you don't usually consider until you're much older and running out of investment time.
It is a prudent investment to sit down with a Financial planner who knows how to properly construct short-term, medium-term and long-term retirement goals. A plan that is then created to address any shortfall in projected wealth will ensure this young couple can be fully self-funded in retirement.
I am passionate about this and believe that any couple who starts planning their financial future as young as their 30's should not be required to work full-time until they're aged 65 and beyond.
So, take your first step and PLAN TODAY.