Common financial regrets among retirees
CONWAY GITTENS: What is the most frequent financial regret you encounter among retirees?
RIC EDELMAN: The primary regret is that they didn’t begin saving earlier. A lot of people wish they had started saving in their 20s, but very few actually did. This is a prevalent regret among retirees.
In Australia, this feeling is shared by many on the cusp of retirement. The sooner you initiate saving, the more time your investments have to mature, benefiting from the power of compounding. Regrettably, numerous Australians postpone their savings journey, often focusing on other financial responsibilities like home ownership or lifestyle costs. When they finally grasp the significance of retirement savings, they’ve squandered precious years of potential growth.
It’s a hard truth, but the message is unmistakable: starting early is vital. Even minor contributions in your 20s or 30s can lead to a considerable impact by the time you reach retirement age. The longer you delay, the more difficult it becomes to catch up, and this is a regret many retirees wish they could alter.
Strategies for catching up on retirement savings
CONWAY GITTENS: What recommendations do you have for individuals approaching retirement who feel unprepared?
RIC EDELMAN: It’s a challenging situation because we can’t rewind time. If you find yourself in this situation, there are several measures you can take, although they may not be easy. First, you’ll likely have to work longer than you initially envisioned. Second, you’ll need to boost your savings, even if it feels like a stretch. Sadly, there aren’t many alternatives. You could cut back on your expenses, but not many are ready to make significant sacrifices like selling their home and downsizing. Another option, which no one wants to consider, is a reduced life expectancy, but that’s not a practical answer.
Ultimately, you need to save more, work longer, and make sure your investments are set for higher returns. Simply placing your money in a bank account with a 3% yield won’t suffice. You must remain invested in financial markets to have any hope of accumulating the necessary funds for retirement.
In Australia, the superannuation system offers a robust basis for retirement savings, but many Australians still feel unprepared as they near retirement. If you’re in your 50s or 60s and haven’t saved adequately, it’s crucial to act now. One highly effective strategy is to make extra contributions to your superannuation. The Australian government permits concessional contributions, which are taxed at a lower rate, up to a yearly limit of ,500. If you have the financial means, leveraging this can greatly enhance your retirement savings.
An additional option is to consider salary sacrificing into your super. By allocating a portion of your pre-tax income into your superannuation, you not only augment your retirement savings but also lower your taxable income, creating a win-win scenario. However, it’s essential to adhere to the contribution limits to avoid excess contribution taxes.
For those who are self-employed or have an irregular income, establishing a structured savings plan is vital. Many Australians in this group don’t benefit from employer superannuation contributions, so it’s their responsibility to ensure they are saving sufficiently for the future. Setting up automatic transfers into a super fund or investment account can help guarantee consistent saving, even if your income varies.
Moreover, examining your investment strategy is crucial. As you near retirement, it’s tempting to pivot to safer investments, but this can prove to be a mistake if you have a decade or more of life expectancy remaining. While it’s essential to mitigate risk, you also need to ensure that your portfolio is generating adequate growth to outpace inflation and support your retirement years. A diversified portfolio that includes a blend of growth assets like shares and property, alongside more stable investments like bonds, can help achieve this.
Don’t overlook the significance of obtaining professional advice. A financial adviser can assist you in evaluating your current situation, setting realistic goals, and formulating a strategy to catch up on your retirement savings. They can also help you navigate the intricacies of superannuation, tax planning, and investment management, ensuring you capitalize on the opportunities available to you.
