Tuesday, April 12, 2016

Live in the moment by putting a future plan in place now

One of the benefits of having a financial planner is that they work to future proof your goals.  Financial planners think of the client's long term, so that they can live in their short term with as little stress as possible.  This is all reliant on the client providing the long term goals, or, at the very least, an idea of their end game so that the skills of the financial planner are utilised as effectively and efficiently as possible (and trust me...financial planners have a deep and abiding dislike of inefficiency). 

Lesson 6: Have a retirement plan in place

I often paraphrase Lewis Carrol's Alice in Wonderland, "if you don't know where you're going, it doesn't matter how we get there".  If you're a 25 year old earning $40,000 per annum, with a increase of 3% per year, and you have implemented all of the previous lessons, then by the time you are aged 50 your finances should (broadly) look like this:

Salary: $81,000, Investment account: $378,411 (return 7%, contributions increasing with salary 10%, earnings reinvested), Superannuation $309,241 (return 7%, contributions increasing with salary 9.5%, 15% tax on earnings, earnings reinvested).  Now, this scenario has assumed that you've remained single, and therefore it's unlikely that you will have purchased your own house.  Your after tax funds are $63,000, less your annual savings of $7,725, leaving your living expenses at around $55,000. 

If you had wanted to have the option of retiring at age 50, then you will have missed the mark. You cannot access your superannuation for another 15 years, and your investment account will only last slightly less than 7 years.  This means you have two options, work longer or spend significantly less over the next 15 years.

Your ability to meet your long term plans are impacted by your short term decisions, so it's important to plan your retirement outcome now, so that you can work out the milestones you need to achieve to get there.
By Erin Wright B.Int Bus Dip. FS(FP), Accredited Aged Care Specialist
Find Erin at Achieveit Financial Planning or call for an appointment on 07 4638 5011

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