Some Australians put off planning for retirement because they believe they are too young to think about it and have plenty of time to worry about saving for retirement in the future. Others delay their retirement planning efforts because they simply don’t know how to get started. After all, trying to figure out how much money you need to live on decades from now can be a true challenge and it can be even more challenging to devise a plan to save up that money. However, planning and saving for retirement are not things that are done overnight. It takes decades of regular effort to prepare for your retirement years. Here are five key steps to take that can help you to enjoy a comfortable, prosperous retirement.
Start Planning Early
First, it is important to start planning for retirement as early as possible. By planning for retirement early, you can more comfortably make regular contributions to your retirement and savings accounts. In many cases, smaller contributions made over a longer period of time will result in a more sizable retirement fund than making larger contributions over a shorter period of time due to the effects of compounded interest, dividend payments and other related factors.
Determine Your Retirement Income Needs
Some people will start contributing money to a retirement account without actually pausing and giving thought to how much money they will need to retire comfortably. While any regular contributions into your retirement fund can be beneficial, it is better to determine your needs for retirement income and develop a plan. This will help to ensure that you save enough money for retirement without stressing out your budget by making higher contributions than are necessary. If you are having trouble estimating your retirement income needs, consider calculating 70 percent of your current income to determine retirement income needs. Then, use an online calculator to adjust this figure for inflation.
Maximize Your Super Contributions
Most Australian workers are required to contribute a portion of their wages into a superannuation fund. Super contributions are taken out of your paycheck and deposited into a super fund by your employer. You should be aware that you may have the ability to contribute more than the minimum required amount. Because super contributions are made with pre-tax dollars, you can save more for retirement and reduce your current tax liability by maximizing your contributions.
Consider Other Savings Options
After you have maxed out your super contributions, you should consider other options. You can save money into various non-retirement accounts, but you can also use other investments for income. For example, you can purchase an annuity or invest in income-producing real estate. These are typically rather large investments to make, so it is important to start saving for them early.
Reduce Your Debts
As a final note, it is important to understand that your income needs in your retirement years are dictated by your expenses. Some expenses, such as utilities and food, may be decreased slightly by living a frugal lifestyle. Other expenses such as credit card payments and a home mortgage payment may be eliminated from your budget entirely. Take a close look at your budget today and consider which expenses you could entirely eliminate from your budget if you focus your efforts on debt reduction. By reducing your debts today, you can live more comfortably on less money in the future.
Planning for retirement can be stressful. However, by considering these steps, you can develop a feasible, sound plan that can help you to enjoy a prosperous retirement.
Dennis is a Financial Planning expert from Sydney, Australia. He is often assisting people with their retirement plans and providing DIY super advice for people opting to manage their own funds.
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