How much should you save for Retirement?

How much should you save for Retirement

Investing 15% of your gross household income towards retirement is one for the key steps in the Financial Peace Framework.  Many financial advisors and investment specialists also recommend a similar figure.

Naturally, saving for retirement isn’t as simple as just setting aside 15% of your salary.

The 15% rule of thumb has a few factors to consider.  You need to begin saving early in life, watch carefully for fees and taxes, choose your investments carefully, and reassess your progress over time (particularly after any major market corrections).

The great news is that from 1 July 2022, your employer is required to contribute 10.5% of your salary to your Super (by way the Superannuation Guarantee Contribution).  This is legislated to rise even further in the years ahead.

Now Superannuation is a great investment environment.  The tax advantages are significant. But it isn’t the only option you have available to plan for your retirement.  You may decide to invest additional funds outside of super which would permit early access and potentially early retirement.  However, many commentors suggest taking full advantage of the available Super Contributions caps before looking outside.  Like all things, it’s a trade-off to be discussed and considered.

What are the Super contributions caps?

In short, because of the considerable tax advantages, the Government sets a limit on how much you can put into Super each year.

There are 2 types of contributions.

  1. Concessional Contributions (before tax money) – the FY22 annual limit is $27,500. This includes the amount that your employer is required to contribute. And salary sacrifice contributions also fall under this cap.
  2. A Non-Concessional Contribution (after tax money) – than FY22 annual limit is $110,000.

Of course, there are a few more nuances to all of this, but the ATO has good information available. Your Super fund can also answer factual questions about this if you contact them.

Consider these tips to optimise your Retirement savings.

  1. Assess future income needs

Look at your current spending to predict your future income requirements. Of course, this is a starting point only. But it is worth looking at closely, because the higher annual income you need/desire in retirement, the bigger your nest egg will have to be to support this.

Start by listing your typical monthly expenses as they are now. Then consider whether each expense will stay the same, go up, go down, or — best of all — disappear in retirement.  Now make an estimate of the expenses that will continue (or commence) in another column.

There will also be new things to include in your post retirement budget like travel, sport, leisure activities, medical and miscellaneous. This will give you a rough idea of your monthly spending needs in the future. Multiply it by 12 and you’ve got your annual estimated retirement income.

A quick note on debt. Ideally, you’ll bid farewell to your mortgage before commencing retirement.  And your other debts should be long gone by following the Financial Peace Framework.

  1. Take control of your income

Money is great at following orders, and that’s essentially what a budget is – a list of instructions to your money.  It allows you to take charge and tell every dollar the job that you have in mind for it.  Your income is your greatest wealth creation tool, however this only works when you are intentional by telling your money what to do and following a plan that is aligned with your goals.

  1. Make savings a priority

Keep your eye on the prize.  A budget is a great way to make sure your money is working for you.  You’re paying attention and being intentional with your spending and saving so that you can enjoy the type of retirement you dream about.  We all have many financial responsibilities—children, parents, home renovation, the rising cost of living and other items.  However, the years have a move quickly and your retirement is too important to ignore.  This explains why it’s so important to control your money.

  1. Keep on top of your retirement goals

Conditions change, and your retirement requirements will change with them. Whether it’s a new job or a new passion for traveling the world once you retire, it makes sense to complete these retirement calculations reasonably often. It is always better to adjust as you go rather than strive to catch up down the road.

Like all financial matters planning for retirement can seem daunting.  The good news is that you can make progress one step at a time, by applying the steps of the Financial Peace Framework.  Importantly, success with your personal finances in 80% behavioural and only 20% what you know.  This means that the key is to act now and develop the new behaviours and skills that will help you to Win with Money.

Would you like help?  Let’s schedule a Zoom chat to talk about how you can move forward today.

“Money is a terrible master but an excellent servant.”
P.T. Barnum
American author