Navigating the path towards a comfortable retirement might seem overwhelming, but with a bit of forward planning and a few savvy financial decisions, you can lay the groundwork for a secure future.
At The Village Retirement Group, we’re committed to enhancing the financial literacy of individuals of all ages, with a particular focus on those approaching retirement. With this article, we aim to help guide you through the best way to save for retirement and ensure you have the knowledge and tools necessary to make informed decisions about your financial future.
What is The Best Way to Save For Retirement?
Saving for a secure retirement is a major financial goal for most individuals. To ensure a comfortable and secure retirement, adopting a well-rounded and integrated approach is essential. This includes creating a comprehensive retirement plan, maximising your super contributions, making strategic investment choices, minimising debts, and more.
Fortunately, in this article, we’ll answer the burning question, “What’s the best way to save for retirement?” We’ll do this by outlining the top tips to boost your retirement savings, helping you create a solid financial foundation and achieve peace of mind for your golden years.
1) Create A Retirement Savings Plan: Assess Your Finances & Set Your Retirement Savings Goal
The ideal retirement will look different for everyone, but the one thing we all have in common is the need to have a retirement plan set in place. Creating one, with the help of an experienced professional, will ensure that you have a clear roadmap to follow, guiding you toward your retirement goals and giving you peace of mind along the way. A solid retirement plan involves three key steps, these are:
Conduct A Financial Audit
Before you start saving for retirement, it’s important to first take a detailed look at your income, expenses, and existing assets. Doing so will help you understand your current financial situation and identify areas where you can make adjustments to allocate more funds towards retirement savings.
Evaluate your spending habits and identify areas where you can cut back. Look for ways to reduce unnecessary expenses and put those savings towards your retirement fund. Understanding your current financial landscape is the first step towards building a solid retirement plan.
Set Your Retirement Savings Goals
Setting clear retirement savings goals is crucial for staying on track. Consider your desired retirement lifestyle, expected expenses, and retirement age. Do you plan on travelling? Will you have any healthcare or other specific needs? Having a particular savings goal in mind makes it easier to create a realistic plan to achieve it.
Determine the amount you need to save each month or year to reach your desired retirement savings goal. Break it down into manageable increments and set specific milestones along the way. This will keep you motivated and allow you to easily track your progress.
Stay Informed & Review Regularly
Retirement planning is not a one-time thing; it’s something you need to review regularly, annually or when significant life changes occur. This can include changes in your income, family situation, retirement policies, investment options, or financial goals. Staying informed and reviewing your plan will help keep you on course to achieve your retirement savings goals.
2) Set Up Voluntary Automatic Recurring Payments
Consider setting up voluntary automatic recurring payments into your superannuation account. This method is the best way to save for retirement if you’re self-employed but it is also great if you’re looking to boost your retirement savings beyond what your employer’s contributions provide.
Setting up automatic transfers to your super fund reduces the temptation to use those funds for other purposes and allows you to build your funds without having to remember to make manual payments. Start small if needed, and gradually increase the amount as your financial situation allows. The key is to make regular contributions, even if they are small, over an extended period. Ultimately, it can help you maintain discipline and steadily build your retirement nest egg.
3) Salary Sacrifice Contributions
Saving for retirement can often feel overwhelming and complicated, leading you to question, “What is the best way to save money for retirement?”
One potential solution is to implement salary sacrifice. Whether you’re in your 20s and starting your career or in your 50s and approaching retirement, opting for salary sacrifice can be a wise decision. It allows you to contribute to your retirement savings while potentially reducing your taxable income, providing a smart strategy for securing your financial future.
Salary sacrifice arrangements involve an agreement between you and your employer to allocate a part of your pre-tax salary towards your super in addition to the payments already made by your employer. This reduces your taxable income and may result in tax savings, depending on your tax bracket. Ultimately, salary sacrificing, amongst other methods, is the best way to save for your retirement in your 50s and 20s as it allows you to maximise your contributions and take advantage of potential tax benefits.
4) Choose The Right Investment Options
If you’ve ever read a blog about the best way to save for retirement, you’re probably aware that investing wisely and consistently is often a vital component of a successful retirement plan. Generally, the two key factors in developing a solid investment strategy for your retirement savings plan include:
Understand Your Investment Profile
When it comes to investing to increase retirement savings, determining your risk appetite is crucial. Generally, younger individuals can afford to take on more risk than older individuals. This is because younger investors have a longer time horizon until retirement, which allows them to weather market fluctuations and benefit from the long-term growth potential of riskier assets like stocks. They also have more time to recover from potential losses that may occur.
On the other hand, older individuals may prefer a more conservative approach with lower-risk investments to protect their accumulated savings and avoid significant downturns that could impact their retirement plans.
Determine What to Invest In
Diversification is key when deciding what to invest in to increase your retirement savings. Regardless of your age, it’s generally advisable to spread your investments across different asset classes to reduce risk. This could include a mix of both high and low-risk investments or focusing on diversification within one category.
Ultimately, a financial advisor can help you design an investment portfolio that aligns with your risk preferences and provides the potential for growth over the long term.
High Risk (Growth) Investments Include:
- Property
- Cryptocurrencies, e.g. Bitcoin
- Stocks
- Commodities
Low Risk (Defensive) Investments Include:
- High-interest savings accounts
- Term deposits
- Government & corporate bonds
- Exchange-traded funds (ETFs)
5) Try to Get Rid of as Much Debt as Possible
While it might initially seem daunting, reducing or eliminating your debt before retirement can have numerous benefits. Not only does it free up more funds that can be directed towards savings, but it also brings about a profound sense of peace of mind and security.
Start by tackling your highest-interest debts first, such as credit card balances or personal loans with steep interest rates. By prioritising these debts, you can minimise the amount of interest that accrues over time, ultimately saving you a significant sum of money. At the same time, continue making minimum payments on your other debts to ensure they don’t spiral out of control.
Once you’ve successfully paid off one debt, keep the momentum going by moving on to the next highest-interest debt on your list. This method, often called ‘the debt avalanche’ or ‘debt stacking,’ is an effective way to reduce your debts and save significantly on interest payments.
Please note that the information provided in this article is general guidance and should not be taken in place of that given by a professional. We highly recommend seeking the help of an expert financial planner to best plan and optimise your retirement savings.
