Preparing for retirement is a challenging thing for most people. It’s so easy to get caught up in the present that you forget about your financial well-being in the future. The unfortunate thing is that most people do not spend enough time planning for retirement.
Australia is one of the wealthiest nations in the world and the state generally offers good retirement benefits. However, it doesn’t hurt to have other options.
The good news is that it’s never too late to start planning for your later days in life. In this article we will go through some of the things that you might want to consider when creating a retirement plan.
1. Assess your current financial situation
Before you make a concrete retirement plan it’s important to take stock of the sources of income you currently have at your disposal. The more resources you have the quicker you can put aside for your future and vice versa.
It’s important to be realistic and to state things as they are. Track your current spending habits as closely as possible and cut down on any unnecessary expenditure. This does not mean you shouldn’t enjoy your money. It just means that you should be more prudent about financial decisions.
2. Create a buffer savings plan
The whole idea of setting up a pension plan is to ensure that you have a sizeable amount of money saved up by the time you’re ready to retire. The unfortunate thing is that anything can happen at prior to you reaching the official retirement age.
A pension plan is geared toward providing for you after retirement but it doesn’t really work to your advantage when unexpected things such as losing a job happen. Sure there’s welfare but it’s great to be have your own money to help you through hard times.
You can achieve this by creating a buffer savings plan. The idea behind this is to always have a backup sum of money that can sustain your current lifestyle for at least the next six months. As long as you’re working you can continue putting a portion of your income aside for this purpose and this can grow over time to cover you beyond the mere six month period.
At the very least when the time for retirement comes buffer savings can help you transition comfortably into it. Since this is money that you won’t touch you could consider saving it in a zero-fee account, fixed deposit account or zero-risk investment account. Many banks such as ANZ, NAB and Commonwealth Bank offer such services so you can pay them a visit to find out your options.
You ought to make it as inconvenient as possible to access that account. Having various cards attached to it and having the ability to just walk into the bank and withdraw the money makes it easy for you to withdraw and misuse it.
3. Invest in a mutual fund
Another option is to invest in a mutual fund. When you join a mutual fund you’re basically placing your money in a pool which is then used for purchasing various securities and financial assets. Profits made from those assets are then shared out to the investors periodically.
Different mutual funds come with different financial products, terms of service and returns. AMP Capital Australian Equity Income Fund for instance invests in high-return sectors such as telecommunications.
T. Rowe Price Australian Equity Fund on the other hand concentrates on long-term investments and it doesn’t have a minimum investment requirement if you invest directly with them. This factor makes it relatively easy for anyone to join.
Another mutual fund you might consider investing with is the Aberdeen Australian Equities fund whose returns are not as high as T. Rowe and AMP, but it’s quickly growing.
Mutual funds usually attract a service fee of some sort so you need to be aware of that. As with any investment it’s advisable to do plenty of research before jumping in. It’s not advisable to put all your money into one investment.
Mutual funds are by no means a get rich quick scheme. They’re a good way of making some profit off of your money in the long term which could contribute towards your pension.
4. Invest in relatively stable stock
Investing in some stock on the Australian Securities Exchange (ASX) is a potentially lucrative venture. Needless to say it has its risks too and it’s not something that you should venture into carelessly. However, there are many listed companies that you can invest in that show growth almost every year and are relatively stable.
The more stable investment options are usually huge organizations like banks, real estate companies, etc. Their share prices are normally higher but if you do your research and have a bit of luck you might be able to make a decent amount of profit.
5. Invest in other passive or minimal-labour sources of income
Passive sources of income allow you to make money without having to do work presently. For instance many musicians, actors, artists and inventors make much of their money through royalties for a product or idea they created many years ago.
The Internet in particular has made it easy for people to generate passive income. If you are knowledgeable in some fields you could consider starting a blog, starting a YouTube channel, creating online courses or offering products and services that can be easily automated for sale and generate some income.
It doesn’t have to be anything large scale, just a little something to provide some dollars that may come in handy.
Take time to think about something you’re passionate about that you could present to the world and profit off of with minimal work. Many retirees make online courses and sell them via websites such as Udemy. Others write ebooks about topics they know well. You may even be interested in starting an online store selling some niche products that may be of interest to you.
Starting a venture now an letting it grow over time could prove very beneficial, especially if it’s not labour intensive as it can provide something to keep you from staying idle after retirement.
Whenever you’re making big financial plans it’s always advisable to consult a financial planner or expert of some sort. Dealing with banks, mutual funds, commodities exchanges, etc can be confusing for the average person. Having some help from people who are aware of the laws, regulations, terms and overall knowledge of the Australian financial industry can go a long way.
Do your best to avoid making financial commitments if you’re uncomfortable with the terms or you do not understand what you’re getting into. Remember this is concerning your future so it mustn’t be taken lightly.