Australia faces a somewhat unclear future when it comes to supporting our ageing population. With a growing imbalance in the amount of retirees to employees able to support them through ongoing taxpayer funded aged pensions and subsidized healthcare, many are suggesting this type of government assistance is simply not sustainable over the long term.
Some analysts believe aged pensions could become unaffordable for future governments, who will then be in the unenviable position of either committing political suicide by revoking pensions entirely, or looking at increased taxes to support a continued pension fund.
These issues around the future of our economic standing as ‘the Lucky Country’ came to the fore in recent weeks, when the Libs teamed up with the Palmer United Party to freeze the planned compulsory superannuation guarantee increase that was due to take effect in 2018 until 2025.
The rise from 9.5% to 12% in compulsory employer contributions was put on hold in anticipation of the impact the recent mining tax repeal might have on the budget over coming years.
Interestingly, it has since been revealed that a young Tony Abbott fought the notion of compulsory superannuation way back in 1995, when he told parliament it was one of the ‘biggest con jobs’ and a way for making Australian workers fund their own retirement so the aged pension could eventually be scrapped.
Indeed, Abbot tried to justify this recent decision around compulsory super guarantees as a win for Australian workers, suggesting we can all have our money sooner rather than waiting for retirement.
But when you look at government policy around superannuation, aged pensions and retirement holistically, it seems to all point to one imminent outcome…future retirees will be forced more and more to stand on our own two financial feet.
All of this points to one clear take home message for today’s employees and tomorrow’s retirees – the need to implement and act on a clear investment strategy to self fund your post-work lifestyle is no longer an option, but a must.
So here are 9 ways you can secure your own retirement fund and ensure you future proof your financial health…
1. Work out your financial goals in retirement. How much will you need to retire on in order to fund your ideal post-work lifestyle? Remember to account for the rise in cost of living that will occur over time, so your end retirement income goal is realistic and workable.
2. Use these calculations to plan your strategy. How will you attain these goals as you move through life? Your investment strategy should account for your risk profile as an investor among other things, and needs to align with the goals you have set for your wealth creation journey.
3. Be hands on with your financial planning. Don’t leave it all to someone you pay for advice, as they don’t have the same stake in your future as you do. While seeking professional assistance to establish the right investment vehicles and structures for your purposes is essential, you should always be the one in the driver’s seat.
4. Seek appropriate counsel. As mentioned above, seek guidance around your ideal investment approach from appropriately qualified and experienced professionals. While you should aim to be as educated as possible when it comes to your preferred asset class and portfolio structure, you need to know when help is necessary.
5. Explore your options. Many of us fail to make a start on planning for our retirement because we act according to what we know. In other words, a lot of us base our financial planning decisions on what we saw our parents do (or not do), or on popular opinion from within our circle of peers. If you want to do more than just keep a roof over your head and food on the table in retirement – if you want to get out and explore the world for instance – it’s important to not just rely on your standard employer super fund contributions to pay for your post-work lifestyle.
6. Step out of your comfort zone. This aligns with the last point, in that you will need to venture beyond what you know and potentially enter unchartered waters when you make the decision to take full responsibility for your retirement income. Often you will need to unlearn all the things taught to you about financial planning and start again with an entirely different set of rules. But challenging yourself in this way comes with the potential for great rewards.
7. Consider managing your own retirement fund. Self Managed Superannuation Funds (SMSFs) are fast becoming a popular option among investors, particularly those wanting to secure their future income stream through residential real estate. While there are numerous related expenses in establishing these more hands on structures for your retirement savings, the benefits of driving your own portfolio can be well worth the associated costs. As always though, the structure and approach needs to complement your overall strategy and goals and this is definitely an area where expert guidance must be sought.
8. Think about diversification. Consider the assets that would make most sense as an addition to your portfolio based on your personal circumstances, your end objectives and your preferred strategy as an investor. Then once you have a firm foundation established in this particular investment vehicle and are confident in the performance of your portfolio, consider other potential asset classes. Some investments will be more about long-term growth, while others will be about sustaining your portfolio with a healthy balance of cashflow and capital gains.
9. Take action! It’s easy to lose sight of the big picture when there is so much going on in and around our increasingly hectic lives. But the fact is, if you want financial stability and prosperity in retirement, you have to start thinking about tomorrow, today. Don’t put it off and don’t wait for circumstances to potentially take the reins and lead you in a less than desirable direction. Take affirmative action and take the future of your post-work life back into your own hands.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).