Last week I mentioned the three basic life stages that lead up to retirement. I started with people who have left school and are into the early stages of their careers.
This week I want to address those in their thirties and forties. These are important years for Australians because it’s their highest-earning years, the era of their career formation and advances and the years for raising kids, paying mortgages and being too busy to even stop and think.
It’s also the years when most people choose to engage a financial planner who can help plan current resources and decisions so there’s enough to comfortably retire on in the future. These are the years when most Australians buy a home and try to pay it off, which is important for retirement. When you retire, you’ll have a fixed income and you don’t want to be paying off a debt as large as a mortgage.
And because you are earning so much income, these are the years when you should be investing more in your super than your employer’s contribution. The law says that your employer must contribute 9 percent of your wages in a complying fund, but most projections say your contribution should be closer to 15 percent.
The extra contributions are tax effective as are the compounding interest earnings inside the fund. You should also be looking at where this money goes. When you’re 25, you’re invested in the high-yield/high risk shares funds, and when you’re close to retirement, you’ll tend towards the low-risk/low yield cash funds. But in your thirties and forties, when you’re trying to get some good tax effective earnings in your super, you have to balance the need for high yields with the requirement to conserve the capital.
Add to this the calculation of whether it’s better to pay more onto your mortgage or put extra into your super, and you can see why I believe that busy people should engage the services of an expert adviser. And it’s not just getting the investments, the tax and the contributions right so you have decent savings in your super when you retire. You also have to protect your major asset while you have it: which is you and your ability to earn income. Some of the insurances – income, life and trauma – are vital for hard-working breadwinners because their ability to earn income enables their ability to retire comfortably.
Can you balance your earnings with your mortgage and your family, and also protect your income-earning power? And can you do it tax effectively? You’re not alone – go with the smart money and get expert advice.