Unfortunately, many people would reach their mid-fifties and conclude that their savings are not on track to finance a satisfactory lifestyle in retirement.
Fortunately, worthwhile steps can often be taken to boost their nest-eggs in the countdown to retiring.
Perhaps family obligations and/or work circumstances made it difficult to put aside enough money towards retirement. Perhaps, inertia or procrastination played a part.
Ideally, you should begin to save for retirement as early as possible in your working life. (See the recent Smart Investing blog 'Save early, save often'.)
Early savers have the formidable advantage of compounding over the long haul as investment returns are earned on past returns as well as the original capital (including super contributions). And saving early may ease the pressure of a late dash to save as much as possible in the final years before retiring.
Ways to potentially boost lagging retirement savings for those aged 50-plus include:
- Consider delaying retirement if possible given your circumstances. From a financial aspect, a longer working life provides an opportunity to save more for what will be a shorter retirement. And a shorter retirement is obviously less costly. (Perhaps think about working part-time if possible as an alternative to outright retirement.)
- Re-evaluate your ability to save after your children leave home. Parents aged in their fifties or so often have the ability to save more once their adult children are finally independent – and once their mortgages are finally paid off.
- Remind yourself how much you can save each year without overshooting the concessional (pre-tax) and non-concessional (after-tax) contribution caps. Although, for instance, the annual concessional cap – compulsory, salary-sacrificed and personally-deductible contributions – is reduced to an indexed $25,000 from 2017-18, numerous fund members may be able to afford to contribute more than at present and remain with the cap.
- Look at ways to reduce your investment management costs. High annual fees keep compounding over time to markedly erode the benefits of compounding returns. In other words, compounding costs and compounding returns work in opposite directions.
Maybe the bottom-line is to face reality. Preferably, you should have started to save seriously much earlier. Now It is a matter of saving as much as possible while still in the workforce.
Head of Market Strategy and Communications at Vanguard.
05 February 2017