Pension poverty is a growing concern for Australians. According to statistics published by Forbes Magazine recently, a staggering 35.5% of Australian retirees are living in poverty. The poverty rate in people aged 65 or older is higher in Australia than it is in most other OECD countries in the world. The same set of statistics show that 21.5% of people in the United States and 13.4% of people in the United Kingdom retire to live in poverty.
The consequence of not having sufficient retirement savings is trying to survive on an income well below the poverty line. To overcome a lack of income, you have the option of remaining at work until long after retirement age, selling assets you might not want to sell, or learning to live a lifestyle that matches a poverty-line income.
So how do you beat these statistics and ensure that you have enough money to enjoy a comfortable lifestyle during retirement? Here are some tips for improving your retirement circumstances:
Don’t rely on your main residence
A large percentage of Australians believe that their family home is the biggest asset they’ll ever have. While your home is a strong asset to have, it also doesn’t provide an income for you during retirement.
Once you reach retirement age and you’re considering ways to increase or supplement your pension income, your home may be the only option available to you. Selling your home might provide some cash in the short term, but it also leaves you looking for somewhere else to live.
The alternative is to look for ways to build wealth outside of your family home.
Pay off your mortgage
The longer it takes you to pay off your home mortgage, the more interest you pay overall. If you’re paying only the minimum payment due on your mortgage each month, you’ll end up paying 30 years’ worth of interest.
For example, if you owe $300,000 on your mortgage at a 5% interest rate and you take the full 30 years to repay it, your minimum payments will be $1,610 per month. Over the full 30 years, you’ll pay a total of $279,767 in just interest on top of repaying the original $300,000 you borrowed.
However, if you can find a way to repay your mortgage faster, you’ll reduce the amount of interest you pay. Make additional repayments whenever you can. Use an offset account or line of credit to minimise your interest charges. Learn some smart investment strategies that can help you pay down your loan faster.
Avoid over-spending
Marketing companies use strong tactics to ensure consumers spend money, even when they can’t afford it. In fact, it’s become common for many people to pay for things they want with credit cards or personal loans when they don’t have ready cash or savings to cover the costs.
Unfortunately, making repayments on credit card or personal loan balances reduces your ability to pay off your mortgage faster. Spending your income paying for personal debts also stops you from investing into other assets that could be building your wealth.
Contribute extra into super
Contributing even as little as an extra $20 per week into your super can increase your balance on retirement. When you think about it, $20 per week over 10 years adds up to an extra $40,000 in your super balance.
There’s also the benefit of compounding to consider. That $40,000 extra contribution from your salary doesn’t include any growth over that period of time.
It’s also worth looking at how your super investments are structured. Most superannuation funds allow you to determine the asset allocation structure you prefer to suit your risk profile.
For example, if you’re in your 20’s you might consider choosing aggressive investments, such as high-growth. By comparison, if you have a conservative risk profile you might prefer to consider more carefully how your super is invested so you get the best bang for your buck.
Diversify your investment portfolio
Investing in property is a popular wealth building option for many Australians. However, it’s not always as common to see Aussies diversify their investment portfolios into other asset classes.
Investing into shares provides the option to earn dividend income. If you’re not risk averse, you might consider gearing your share portfolio to increase the opportunity for growth. If you’re not confident investing directly into the share market, you might prefer to invest into managed funds or share portfolios that can help hedge your risks.
There are a number of different investment options available, so think about ways you might diversify your wealth to take advantage of various markets.
Seek advice to avoid pension poverty
Far too many Australians attempt to do everything themselves, believing they can save a few dollars instead of spending money on professional advice. They may act based on free advice given by a well-meaning friend or from information they’ve found online.
However, if you don’t know what you’re doing you could be at risk of losing your investment. There’s also the risk of structuring your investments incorrectly, which could cost you more in tax liabilities and additional costs down the line.
To help avoid pension poverty pay for advice from a professional adviser. The information you learn could benefit your wealth creation efforts and make it easier for you to achieve your financial goals.
If you want to retire with a comfortable income that lets you live above the poverty line, keep these tips in mind. Even taking small steps towards reaching your goals can compound into a better retirement lifestyle in the long run.
For further information or advice on creating wealth for your retirement call Nieuvision on 1300 832 554.
MORE INFO:
Rick Nieuwenhoven
CEO
e: rick@nieuvision.com.au
– – – – – –
Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.
