Most people – if not all – aim to become financially secure in retirement so that they can have a comfortable lifestyle according to their standards. Here’s what you need to consider and do when saving for retirement.

Envision your retirement goal

The first step to any plan is to know the result you want and understand what steps you need to take to achieve it. Start with your goal by creating a retirement plan.

Some things you need to consider are:

• At what age do you want to retire?
  Consider your intended retirement age as a significant part of your retirement goal. This will help you figure out your time horizon – the number of years you have to save and invest – by subtracting your current age from your intended retirement age.
  
  
• Your expected life span
  According to the Australian Bureau of Statistics, the average life expectancy in Australia continues to increase each year – with males averaging 80.4 years and females at 84.6 years. This means Australian males and females can expect to live about 19.6 and 22.3 years more on average – but this doesn’t mean that you won’t live long.
  
  You should always consider the idea that you may exceed the average life span because failure to address longevity risk may mean outliving your retirement savings. This, in turn, may mean going back to work on a full-time or part-time capacity or relying on age pension.
  
  
• What kind of lifestyle do you want to have? (Comfortable, modest, working)
  Figure out how you plan to live in retirement because your intended retirement lifestyle directly affects how much you need in retirement. This, in turn, determines how much money you need to set aside to top up your retirement savings and super balance.
  
  
• How much retirement income you need to achieve your chosen retirement lifestyle
  Many people think that they need at least $1 million in their super by the time they retire. Even the Association of Superannuation Funds of Australia (ASFA) has calculated that single retirees need $27,646 annually for a modest retirement or $43,255 for a comfortable retirement. However, these assumptions may not apply to your situation.
  
  You know your day-to-day expenses best, so you should be able to estimate how much income you truly need to be comfortable in retirement.
  
  
• Your current and target superannuation balance
  Based on your answer in the previous item, come up with a ballpark figure of the amount needed to fund your retirement by multiplying your estimated required annual income with your expected length of retirement (life span).
  
  You also need to consider whether you will commence a transition to retirement income stream (TRIS) because this will increase the amount you need.
  
  Assuming that you have already been employed and are entitled to super, you’re most likely enrolled in a super fund. Now is the time to go over your account to check what your current balance is and subtract the amount from your target super balance. The resulting number is the amount you need to catch up with – but you don’t necessarily have to save every dollar of it.

The next sections will help you plan and achieve your target balance for a financially independent retirement.

Start early or start now

The most important step to planning and achieving financial independence in retirement is to begin.

It’s ideal to start your financial planning as early as possible to benefit from the time value of money – the idea that the value of money today is worth more than the same amount of money in the future due to the present money’s potential earning capacity.

But regardless of your current age and income, it’s important to start building your retirement finances right now.

You need to look at two things when you begin: your current financial situation and your super.

• Financial situation
  It’s always a good idea to take a good look at your current financial standing to assess your income, expenses and debts. Identifying your financial liabilities is important because these may slow down or derail any and all of your financial goals, especially when high-interest debts (i.e. credit cards) are involved.
  
  When you’ve got a good look at how you’ve been spending your money, you may be able to free up some money by eliminating unnecessary expenses and divert them to your savings and investments.
  
  Create a budget and spending plan to minimise unnecessary expenses. Likewise, clear all your debts as soon as possible because interests from debts can blow up and eat up your potential savings or, worse, your assets.
  
  
• Superannuation fund
  Unless you have alternative retirement savings and investment accounts, your super may be your main source of income in retirement.
  
  Check your statement of account to see your current balance and how much you receive from your employer. Figure out how much you need to reach your target balance then make voluntary concessional and/or non-concessional contributions.
  
  However, simply contributing won’t get you to your target balance – unless you receive an inheritance and you contribute it all. Your investments within super may determine how much you need to add and how fast your money can grow.
  
  Call up your fund manager and ask them to explain how your investments are faring so you can decide whether your fund or portfolio is aligned with your objectives.

Be smart about super

If you plan to receive your retirement income from super – with or without government age pension to supplement it – always stay on top of your super. Your fund manager may be doing the brunt of the work for you, but that doesn’t mean they’re achieving your financial goals for you.

You need to assess different aspects of your fund, including your entitlements (i.e. SG and concessions) and the fund’s fees and performance.

There are hundreds of super funds to choose from, and rolling over your balance to another fund – one that is more aligned with your goals – isn’t hard to do. Take the time to talk to different fund managers and asses if their fund meets your objectives.

You may also talk to an independent financial adviser who can provide recommendations according to your plans.

Contributions to your super
Your contributions to super will serve as your investment portfolio’s principal and top-up investment, so it’s really important to ensure that your fund receives them.

Make it a habit to sit down and check the statement of account your fund manager sends regularly so that you’re aware of the money going in your fund – don’t rely on payslips from your employer. You may also call up your fund manager to confirm the amount and schedule of SG and salary sacrifice contributions from your employer.

If you find that the contributed amount is lower than the one stated in your payslip or if your fund isn’t receiving any contributions made on your behalf, you may file a complaint with your fund or the Australian Taxation Office.

Assuming that your pre-tax contributions are complete, you may wish to consider topping up your super with post-tax contributions if you are financially capable of doing so. Just don’t exceed the existing contributions cap to avoid paying the "excess contributions tax".

Investment options
Not all super funds perform well, so make sure to study how your fund has been performing since you started contributing to it.

While past performance isn’t an indication of future performance, it can give you a clue about how good your fund manager is at what they do and whether you and the fund have the same objectives.

Remember that different investment options yield different results, so make sure to consider what investment assets would best yield the result you want.

Fund fees
The fees you pay the fund manager may affect the growth of your super because fees are taken from your balance and you pay fund management fees whether your investments do well or not. 

Check your super’s product disclosure statement or call up your fund manager to see how much you’re actually paying them in fees and what the fees are for. Then compare the amount of fees you’re paying with the fund’s performance since you enrolled in it.

If you’re paying more in fees or the fees and taxes eat up a significant amount from your earnings, consider switching to a different fund manager.

You may also file a complaint with the Australian Financial Complaints Authority if you were given false or misleading information about the fund’s fees and charges.

Get your finances in order

Once you’ve reviewed your finances and made appropriate changes to your plan and super, make sure to take control of the other important aspects of your finances.

Income
Your income serves as the foundation of your financial independence, so the first thing you need to do is to secure it. It can be through a full-time employment, multiple part-time work or opening your own business – the important thing is that you earn money to meet your needs.

Finding multiple sources of income is also advisable and something you may seriously wish to consider. However, this doesn’t mean you need to take on multiple jobs in order to earn more.

You may earn extra income from a side hustle or two, such as selling a product from your hobby (i.e. food, pastries, art, etc.), pet-sitting or accepting minor repair jobs.

Investment
As previously mentioned, you don’t need to save up every single dollar of your target retirement money. Investing in the right assets and/or funds can help you achieve your goal faster, especially if you start early.

Take advantage of investing within super since it is one of the most tax-effective means to invest – plus it’s sole purpose is to help you save up for retirement.

Insurance
Insurance is important if you have family members who are financially dependent on you, such as your wife, kids or elderly parents.

There are many types of insurance that may be offered to you, but you need to consider which one really suits your needs.

If you have a family  and you’re the main income producer in your household, you may wish to consider a life and income protection insurance. Life insurance ensures that your dependants will receive money in case of your death, while income protection insurance will give you a source of income in case you lose your job or are unable to work due to temporary disability.

Both of these are especially important if you have minor dependants.

Also consider a home insurance if you own your home so that you have a source of money other than your savings to rebuild in case something happens to your property.

Debt
Steer clear of unnecessary debts and always pay your credit cards and other high-interest debts on time.

Most experts suggest that you should pay your debts first before focusing on investments because whatever amount you can earn from investments, you can also lose it due to debt interests.

Having a large unpaid debt could also give you trouble in applying for loans and availing financial services because it lowers your credit score. Hence, more lenders will think twice about approving financial products you apply for.

If you must borrow money, make sure to create a feasible debt management strategy so you don’t end up filing for bankruptcy.

Get financial advice

If you experience a setback that will affect your retirement money any time between the present and your retirement, seek the advice of licensed financial planners who can identify ways to get you back on track.

But remember that reaching a state of financial independence in retirement is a long-term endeavour. Avoid panicking about short-term market fluctuations and focus on long-term strategies.

Explore Nest Egg to learn more about retirement planning.