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The smart Aussie’s guide to retirement planning

Analaura Luna

Most people are aware that planning for retirement is important, but very few people actually take the time to establish an effective game plan. Largely this is because there’s a lot of confusion out there about what a ‘great’ retirement plan consists of. The reality is that the difference between a good retirement plan and a great retirement plan lies in planning early, working out how long you’re likely to be retired for and being strategic about your retirement investments.

Start early
Starting to plan early in life is undoubtedly one of the most important steps in building a strong retirement fund, and small amounts saved consistently over time can end up being much more valuable than large amounts later in life. That’s not to say that it’s ever too late to start saving for your retirement, it’s not. It’s just important to understand that there really is no time like the present to start saving for your future. But no matter when you start saving, you’re going to want to know how long it will take you to reach your goals and the best way to do this is by using the Rule of 72. This nifty little tool tells you how fast you’ll be able to double your pile of cash and all you need to do is divide 72 by the expected interest rate of your investments and the number you’re left with is how many years it will take. It’s simple, it’s quick and it’s also pretty darn accurate. So for example, if you expect to generate a ten per cent return on your investment, you divide 72 by ten and come up with an expected time frame of 7.2 years. Easy. This handy little tool should have you very excited about just how much you can achieve, no matter how old you are when you start.

Plan to live longer
These days people are living well into their 70s, 80s and beyond and the second key to having a good retirement plan is to assume you’re going to live a long, long time. Statistics show that a couple in their 60s have over a 50 per cent chance that one of them will still be going strong at the age of 92! Most people, especially men it seems, tend to have a hard time wrapping their heads around the fact that they’ll be blowing out over 90 candles on a birthday cake someday (probably with the help of the great, great grandkids). While this is fun to picture, the important part is to understand that the implications of this totally changes the specific strategies and tactics you’ll need to employ to realise your goal of being able to have enough money to live on for the rest of your life. The fact of the matter is that for most people there is a far greater risk of running out of money than losing it in a well-diversified investment portfolio. However, you still need to ensure that the decisions and actions you take remain within your risk tolerance profile.

Invest intelligently
When planning your retirement fund you need to be smart about where you decide to invest your cash. For most people, the first place to start is with their employer sponsored superannuation fund. Superannuation funds can be a great investment vehicle, providing significant tax benefits and you have the added bonus of being able to make voluntary personal contributions that may qualify for the government co-contribution as well. These funds can help you accumulate your nest egg faster than a lot of other investment options.

Retirement planning is a complicated issue for most people, but if you understand the importance of starting early, factoring in life expectancy and being strategic about how and where you invest your money you’ll be well on your way to realising your retirement goals. Good luck!

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Author's Biography

Analaura Luna is an author, wealth adviser and founder of Your Family Your Money. Your Family Your Money’s goal is to simplify traditionally complex financial strategies, demystify financial jargon and debunk common financial myths, becoming every family’s first stop for financial advice, information and inspiration