If you’re anything like me, retirement seems a million miles away. This is a double edged sword, because on those days when I need an extra coffee to get up to speed at the office, I wonder why it couldn’t come sooner, but when I think about the fact that I’ll need to have myself set up financially for life after work, I’m glad it’s still far in the distance.
So many young people I speak to are struggling just to be able to take their first big financial step in life, in the form of buying a house and getting into the property market. With saving for their deposit taking up so much of their income and headspace, it can seem a little daunting to also be thinking about questions like “how much do I need to retire?” and “what should I be doing to plan for retirement?”
Without wanting to freak you out, the fact is that by burying your head in the sand, you’re actually only hurting your chances of enjoying the lifestyle you want to lead after work. Here are some of the more common myths we hear about retirement planning – if you’ve heard any of these, or currently hold them as true, now might be the time to speak to an expert about what you can do now to reap big benefits later.
I’ll do it later when I’ve got more money
It’s common for us to think “I’ll start retirement planning later when my earning power increases”. Sure – in a way, it makes sense to think that once you’ve paid off your mortgage and had your family, you can contribute more to your superannuation and retirement investments, as you’ll likely be in a higher paying job. However, as a society, we’re living longer than ever, and you may end up being retired for almost as long as you were at work. By starting saving sooner (even small amounts) you reduce the pressure on yourself to contribute larger amounts later in life. It’s the savings equivalent of cramming before an exam.
My work (or the government) will look after me
As a whole, our financial literacy nowadays is pretty poor, so there is an assumption that when we retire, our financial needs will be met by Centrelink in the form of the pension. While you may end up being eligible for the pension in retirement, it’s designed to help you meet basic needs, so if you see yourself sipping cocktails by the pool after work, don’t rely on the government. It’s also common to believe that because our employer takes care of our super for us, they’ll make sure we achieve the best outcome. Wrong again – while your employer may process the deduction of super from your income, it’s up to you to make sure your money is working as hard as it can.
I’ll be right once I get my inheritance
We’ve all heard this one before. Seems like sound logic, right? While this may have been the case once upon a time, it’s not worth hedging your bets on anymore. Firstly, how do you know your parents won’t be forced to tap into their own retirement fund significantly, should they encounter financial hardship or illness? Secondly, more and more retirees are using their retirement income to lead a more full and rewarding life after work, so there may be a little less left for you. Unless your parents are on the Forbes rich list, you should still make your own plans.
I won’t even need as much when I retire
Many times we’ve heard people basing their retirement planning on the fact that they’ll need less money to live on after work. This doesn’t take into account the changing nature of family life, and the impact this may have on our long term finances. While you may be planning on downgrading your spending after work, we take it you still want to enjoy a comfortable standard of living? And if you want to be in a position to help your children out when it comes to money (think weddings, housing deposit, medical costs), it’s better to aim higher in terms of how much of your pre-retirement salary you want to have access to after leaving the rat race.
I can keep working as long as I have to
Yes, the nature of work is changing – it’s becoming more flexible, we’re changing employers and roles more frequently, and more of us are becoming our own boss. Where this leads to, however, is a perception that even if we’re not in the best financial position to retire at the age we planned (say 60-65), we can just keep working until we are. Look, I don’t know about you, but I don’t want to be hustling for a new gig when I’m in my late 50’s – it’s hard enough in my 30’s. Add to this the fact that the decision to keep working may not be in your hands once you reach retirement age, especially if your health isn’t what it used to be.
It’s not imperative at this stage that you have your retirement plan 100% locked down – the fact that you start planning at all is what’s important.