Speaking to Australia’s young adults, Omniwealth financial planner Andrew Zbik said those settling into their careers should take care to avoid making the same decisions as their parents.
“A lot has changed since they were your age and faced the same decisions. Start planning for your financial future now,” he said.
Mr Zbik gave the example of a young couple, Victor and Verity Young. They’re 30 and 28, respectively, and are both earning $80,000. They’ve just bought their first home valued at $750,000 with a 20 per cent deposit.
They’re comfortable, but this won’t be enough for a comfortable retirement, he said. In fact, in their current situation, they will only save half of what the need in retirement, based on a comfortable standard of $60,000 a year for a couple.
“Anecdotally, I know this is not enough if you wish to travel and pursue a few interests that cost money outside of usual living expenses. In my opinion, a couple living in Australia needs around $85,000 per annum to live a comfortable retirement that allows some international travel and some hobbies that may cost a few more dollars,” he said.
Then there’s the fact that Victor and Verity could live to 100, meaning they’d spend as long in retirement as they would working.
That means Victor and Verity need $1.7 million to fund a retirement income of $85,000 and $4 million when factoring in inflation.
“Having just bought their first home, cash is tight, and they don’t have much equity yet. But here are a few things they will need to do over the next few years that may help,” Mr Zbik said.
1. Prioritise your property
Homeowners who pay off their debt sooner will have more equity for investing. Mr Zbik said home-owners should generally prioritise paying off their mortgage before making super contributions.
2. Start a regular investment plan
Investors who make a regular investment into an indexed fund of $100 a week could achieve an extra $115,000 of capital at retirement, he said.
3. Think about an investment property
“When they do have some equity in their home, if they can buy an investment property worth around $500,000 – this will almost close most of their short-fall over the next 35 years,” Mr Zbik explained.
“This is because property is a suitable asset to leverage with borrowings over the long-term.”
4. Keep investing
Victor and Verity should make monthly contributions to an invested portfolio as their incomes increase. If they can reach $500 contributions, that would mean nearly $575,000 extra at retirement.
“These are just some basic ideas but they’re ideas that you don’t usually consider until you’re much older and running out of investment time,” he said.
“[I] believe that any couple who starts planning their financial future as young as their 30s should not be required to work full-time until they’re aged 65 and beyond.”