What can you do now to boost your retirement fund?
When it’s time to retire, you want to be able to relax and enjoy the life you’ve worked so hard to build. You don’t want to spend the whole time fretting over your finances. How much you’ll need for retirement depends on many individual factors, including what kind of lifestyle you want to lead in the future.
To determine a realistic figure for your retirement, start by working out how much you’ll need to live off each year. For example, the ASFA Retirement Standard indicates that the average Australian couple will need $34,560 a year for a modest lifestyle, or $59,619 a year for a more comfortable retirement. For singles, those estimates drop to $23,996 and $43,372, respectively.*
Once you’ve determined an annual income, it’s simply a matter of multiplying it by the number of years you expect to be relying on it. While the average life expectancy in Australia is around 85 years, you should plan to save for much longer. You might also want to consider how an increased cost of living will impact your savings.
Regularly making additional contributions to your superannuation is one way to boost your retirement fund – for example, an extra $350 a fortnight from the age of 55 would add up to an extra $91,000 deposited into your super over 10 years.
Alternatively, if you’re looking for a safe and secure way to build your wealth, but want the option of being able to access your money before retirement, you may want to consider taking advantage of term deposits and high interest savings accounts.
Term deposits for reliability
Term deposits are a popular investment among Australian savers because they are easy to use, government guaranteed up to $250,000 (per person, per ADI) for example, you'll get the money back you invest up to $250,000 and usually have no fees.
Another major benefit of a term deposit is reliability. The interest rate is fixed for the duration, so you know exactly what return you’re going to get when it matures, even if there are cuts to the official cash rate.
Term deposits typically range from 90 days to five years. Generally, the longer you leave your money in there, the better the interest rate. On short-term deposits, the interest is paid at the end of the term, while on longer terms, you can opt to have the interest paid into a separate account on a regular basis.
You may need to provide notice if you want to access your money before the maturity date, and that your provider may impose an interest rate adjustment. Don’t forget to check the minimum and maximum deposit amounts when comparing term deposits, as these can also vary widely across providers.
High interest savings accounts for flexibility
Like term deposits, high interest savings accounts offer the certainty of growing your nest egg without worrying about volatile financial markets potentially wiping it out.
Unlike term deposits, you have access to your money when you want it, and the interest rate may fluctuate with changes to the official cash rate. This means you may benefit from increases, or have to endure cuts – but either way your savings will keep accumulating interest.
Many banks and credit unions offer high interest savings accounts with zero monthly fees, and some have attractive introductory and bonus rates to help build your savings faster. This Bank of Melbourne Maxi Saver account and RaboDirect High Interest Savings Account are just two examples of no fee high savers. After the introductory period, the interest will drop back to the standard rate, so take this into account when comparing high interest savings accounts.
Whichever way you choose to grow your wealth, it’s never too early or too late to boost your savings. Start making extra plans for your retirement now to enjoy the lifestyle you want in the future.
*These figures are correct as of 30 September 2016. However, due to inflation, retirement costs will rise over time.