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Don’t be in denial about your retirement – fund the shortfall yourself

The pundits are divided about how much you need to retire on comfortably.
One expert will say $1 million is enough, while others say you’ll need a fair bit more, particularly as the make-up of (and accessibility to) the aged pension is likely to change in the future.

And crucially, which side of the fence you sit will depend greatly on your definition of ‘comfortably’.

Many experts point to a retirement shortfall based on the longevity risk of outliving your super.
There are varying statistics that suggest how big the shortfall is when it comes to most Australians retiring.

 

What they also highlight is many Australians are in denial about their retirement.

Research by Mercer suggests:

  • one in four Australians will outlive their savings (a retirement shortfall) by 11 years
  • the average shortfall is almost $500,000

 

HSBC’s ‘Future of Retirement’ global survey of people’s attitudes to retirement savings also shows:

  • while Australians expect to spend 23 years in retirement, their money will run out after only just 10 years, leaving them to rely on the age pension to survive
  • The retirement shortfall of 13 years is among the longest gaps of the 15 countries surveyed

 

People are becoming more and more aware that they will have to work for longer if they keep going down the path they’re on.

But it’s not all doom and gloom!

You can fuel your future by taking charge of your finances, and abiding by some simple, timeless money fundamentals:

  • The more we earn, the more we spend – to counter this, so you can save & invest money, you need to take money off yourself
  • Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it.” – Albert Einstein
  • Bottom-up budgeting: start with your savings goal, and work backwards
  • Take a long term view (How do you eat an elephant? One mouthful at a time)


Fund your own retirement shortfall – 
set up a regular investment plan

  • Example: 45 year old eligible to retire in 20 years
  • By saving just $200 a week, and contributing it into a regular investment plan (growth portfolio averaging 7.90% total return per annum + 3% CPI with all contributions reinvested), in 20 years’ time you would have $643,351 (in future dollars)


This table highlights the power of setting up a regular investment plan.

It can be easier said than done to find a spare $200 a week. But there are two basic ways to generate additional savings:

  1. Reduce your spending (boring).
  2. Make more money. Tune into The Living Room this Friday at 7:30pm on Channel 10 as I show you how to save money fast