Understanding How To Secure Your Financial Future

The cost of living in Australia has jumped in the last twelve months. If you have a mortgage then the repayment has likely doubled. A simple trip to the supermarket is now an expensive exercise.

Even on a global scale living in Sydney is expensive. Tolls, parking, rego, rates, electricity (how does a country with such amazing natural resources have such high energy prices?), and most importantly property and rental prices all contribute to a high cost of living.

The good news is we are living longer. As a couple you need to plan for at least one of you to live until 90.

This means you need both more money each year for your living expenses, and you need that money to last longer.

In our experience, whilst not easy, if you plan properly and make consider spending and investment decisions you can retire comfortably.

What does comfortably mean? The Association of Superannuation Funds of Australia (ASFA) publishes a “Retirement Standard” as per below:

For those aged ~65 years

Category	Income Required at Retirement
Comfortable lifestyle for a couple	$70,806 per annum
Comfortable lifestyle for a single person	$50,207 per annum
Modest lifestyle for a couple	$45,947 per annum
Modest lifestyle for a single person	$31,868 per annum

The above numbers are based on the expectation you own your own home.

The question we most commonly get is - whats the magic bullet? The answer is disappointing, there is no magic bullet. It is not realistic to consistently achieve a 30% return every year.

However, this does not mean that you cannot both own your own home and have an enjoyable retirement.

What it takes is planning and consistency.

Planning starts early - when you start working you are often living at home. That is the time to get into good lifetime habits. Spend less than you earn. At some stages in your life this may not be possible. But when you are starting out with limited expenses it needs to be something you commit to.

Once you have committed to saving (spending less than you earn) you need to commit to the next important principle - grow your assets early not your liabilities.

Building assets early will put you in a good position for when you do have more expenses later in life. When you are young you want to focus on growth assets not income assets.

By building your capital base you can build sufficient assets to provide the income you need in retirement. There are many ways to do this, and early in life you can consider using leverage to boost the assets you can invest in. The most common form of leverage is buying a property with borrowed money.

To provide an idea of how leaverage works:

• Lets say you invest $100,000 and it grows 5%, your investment without leverage is now worth $105,000. This is not a bad return and will grow the longer you leave the funds invested.

• Lets say though you borrowed $400,000 and used your savings to buy a $500,000 asset. In this case if the investment grew 5% your return is $25,000.

Of course this example also works in reverse. If you select the wrong investment then you will loose far more in a leveraged investment. With leverage in a worst case example, you can loose more than your initial investment.

That is why seeking advice and planning well is critical to an investment strategy.

If you are consistent in growing your assets early in life, it will help build a buffer as during your 30's and 40's sometimes your commitments don't allow for you to save and invest but merely to pay the bills.

Once you get to a stage that you have less commitments, which is often when your kids start paying their own way, then you can really start building for retirement.

We have worked with a number of clients who had not built any wealth by their 50's including not owning a property) and we were still able to create a plan to retire in comfort.

But at this age some of the investment choices will differ. Stay tuned our next blog will be on how to retire in comfort if you are in your 50's with no assets.

For more professional retirement planning advice, call 02 9634 6698 or book a free consultation online with our expert financial advisors at our office in Sydney's Norwest.