Money decisions relating to the here and now usually take preference in our lives over your retirement plans. You may find yourself spending the majority of your time focused on the now, and less on your future. But, whether you like it or not, old age will come for you one day. If you fail to prepare for this golden era, you may find yourself licking your wounds.
Failing to look ahead can result in catastrophic events such as:
- Never being able to see Europe, even though it’s on your bucket list
- Not being able to afford that hip replacement and having to borrow a second-hand rickety walking frame
- Driving an old Datsun when all your friends are rolling in BMWs
- Living on a diet of baked beans and tuna instead of gourmet ham and cheese toasties from the local hipster café – you know, the place where all the beards are.
These are just some of the obstacles you could potentially face and there may be even more undesirable ones on the horizon.
Relying solely on one avenue for your retirement is a recipe for disaster, you need to be smart and attack it from as many angles as possible. It all begins with a solid household budget.
Take charge of your future with my 5 retirement tips for young adults and get started on the right path
1. Consistently save a percentage of your income each week
I know, I know. This is not a really ground breaking idea and you would have heard people drilling this into your head your whole life – and it’s for good reason.
The number one most repeated piece of retirement advice for young adults happens to be one of the most logical and sensible.
Thankfully, employees in Australia automatically have a portion of their wage contributed into a superannuation account for them each week, but the self-employed or unemployed are left to fend for themselves.
If you’re an employee, don’t get complacent. Just because your employer is making contributions on your behalf, doesn’t mean you can’t add more to it. There’s plenty of incentives offered by the government for saving more to your super; such as tax savings and co-contributions.
Being diligent and doing your research to find the best superannuation retirement account for young adults will enable you to limit fees and earn more from your money.
But maybe you’re not a fan of locking up your funds until age 60. Maybe you read my article on why you shouldn’t contribute to super.
If this is you, then you should at least be saving somewhere.
Automated deposits can be set up from your day-to-day account into a savings account, so that you never have to waste your time making manual transfers with Internet banking. This will also aid in reducing the temptation to spend that money elsewhere.
“A cruise around the world when I’m older or extra avocado on my burrito now?”
Remember, superannuation funds and institutions offering retirement accounts want your money just as much, if not more, than you do. Take the time to compare retirement accounts and use this information to make an informed decision.
2. Diversify retirement investments to reduce risks
One of the worst things you can do with your money is to put all of your financial eggs in the one basket.
Again, and oldie but a goodie. Diversifying your investments won’t help you shoot the lights out with investment returns, but it will steady the ship and ensure your savings don’t end up next to the Titanic.
Sinking all of your savings into one investment might provide you with large gains in fortunate times, but it will rip you a new ring-hole when times are bad, as millions of people experienced during the GFC. This is not a wise risk to take and you should aim to diversify your investments so that your potential losses will be covered by potential gains.
3. Don’t take ‘the set and forget ’ attitude when it comes to your hard earned cash
To be completely honest, this goes against the grain of my whole philosophy. But let me explain.
I am a major fan of the ‘set and forget’ attitude. Why? Well, because I’ve seen too many people with their fingers constantly in their savings pie, selling this and buying that, at completely the wrong time, incurring huge transaction costs along the way. The property market and share market will generally always increase in value over time. Sometimes you have to turn a blind-eye to all the ‘noise’ on TV each day and just think of the bigger picture.
click image: source: Vanguard
The set and forget method is also the much easier way to live life. You don’t want to spend your life reading financial articles and superannuation performance reports, do you?
It’s fine if you do. And, if there are some of you out there, then I guess that justifies the inclusion of this retirement advice tip #3.
So, if keeping on top of financial markets daily floats your boat, keep an eye on the performance of your superannuation and investments. Returns from super funds, the most utilised retirement account for young Australians, will vary year-on-year and you should never assume returns are guaranteed.
Your super fund has only one role: to make your money work for you, but as the market is a volatile creature you should be prepared for its ups and downs.
Keeping an eye on your superannuation, and other investments, will enable you to make a change when you feel it necessary.
But please remember this:
When the world is talking about how amazing the economy is performing, and investment returns are at record highs, and superannuation funds are patting themselves on the back, and your neighbour is telling you to invest everything you own into shares and property; then this is usually the time you should be thinking about being more conservative with your investments. Conversely, when there’s economic blood on the streets and the news is full of doom and gloom – because billions are being wiped off the share market – every street is full of ‘for sale’ signs, and your Uber driver is telling you that shares are the riskiest investments on the planet; then this is usually the time you should be preparing to invest.
Remember, your super fund is charging you fees and if it isn’t performing for you, you should consider your options. But don’t look at their returns over the past 6 months, or even 12 months. Look at how well they have performed over, say 5 years, or 7 years. Don’t be shy about making a move to another fund if it is going to benefit you and your family financially in the long run. Remember, if you plan on switching, contact the super fund you want to move to, not the one you want to leave – I guarantee they’ll be much more helpful.
4. Make your kids work for you
Some people say that the best investment you can make is time with your family, and this is 100% true – I mean, who else is going to look after you when you get old?
Your best strategy for developing your very own personal retirement village (your children’s house) with round the clock staff (your child and their family) is to really drum in the idea of family values from an early age.
Take the cue from many Italian households around Australia that teach their kids that family should come above everything else in life. You will notice that the majority of young adults in Australia with Italian heritage have an elderly parent taking up space on a plastic covered couch in their living room – if you play your cards right, this could be you!
This strategy will mean you can spend the money that would have otherwise been allocated to expensive retirement communities on the things that really matter to you – like cognac, bingo entry fees, new dentures, and your own custom engraved set of lawn bowls.
Take care of your kids when they are young and use this as ammunition to guilt them into providing a roof over your head when you are old.
5. Retire where your dollar is doubled
If you can’t stand your son or daughter’s partner, or think that their kids are a little on the pungent side, you can adopt another strategy by retiring abroad.
Retiring abroad will help you tick off a couple travel boxes on your bucket list, while feeding your soul with adventure.
Aim to retire in countries where your dollar will have the most impact and not ones that will have you counting your coins at coffee time.
Lucky for you, you grew up in Australia with Australian dollars. This will go a long way in many countries spreading out across Asia and South America, allowing you to live like royalty – not so much in Europe though… Sorry about that.
Alrighty, that’s it for another day. I think you’ll find that this is some of the best retirement advice going around for young adults today.
How have you been preparing for retirement?
Author: Chris Strano
After playing a vital role in the creation of his two sons, Chris Strano gave up his former-life as a financial adviser to dedicate his time to providing everyday families with basic money management advice. Drawing on his years of education and experience, he has also developed an affordable 100% digital course showing young families how to build their own custom household budget and savings plan to work towards their goals, using financial planning strategies (without the cost of a financial adviser). You too can get started by grabbing his free 6-Step Budget Cheat Sheet at Build A Family Budget and follow him on Facebook and Instagram @SmartFamilyBudget.