The sooner you start planning, the better off you’ll be.
The Association of Superannuation Funds of Australia (AFSA) suggests a comfortable lifestyle for a couple, including entertainment, a car, clothes, private health insurance and holidays, can cost as much as $58,000 a year. Compare that to a modest lifestyle, which still requires about $34,000 a year per couple.
Given the average person will need about two-thirds of their current gross income each year to maintain a modest lifestyle in retirement, it is never too early, or late, to start building up assets, savings and super.
Planning for retirement can be complex so it’s important to get advice from people with specialist knowledge. Advisers at Allied Investment Group can provide strategies to boost income in retirement, which can come from a range of sources, including super, other investments and the age pension.
There are also government incentives that you could be missing out on.
Power of time
The compounding effect
There are three key drivers behind the compound effect:
Rate of the return — obviously, the higher the better.
Contribution — obviously, the bigger the better because it means there is more for returns to compound on.
Time — obviously, as mentioned previously, the longer the better because it means the longer the compounding process of earning returns on returns has to run. Time also helps to smooth out any year-to-year volatility in returns.
Understanding how compounding works will assist in making better decisions when choosing an account that pays interest. An online savings account that pays monthly interest is an example of an account that earns compound interest. A term deposit is an example of an account that earns simple interest, which is only paid at the end of a specified term.
Whether you’re in your mid-20s or mid-50s, if you can afford to put away even just $5 a day, starting now, compound interest will reward — even in today’s low interest rate environment.
Understanding compounding is just one area where Allied Investment Group can help you to improve your savings situation and make savvy financial decisions to reach your retirement goals. There are myriad other vehicles to grow your savings.