Money

Why You Should Plan For Retirement Now (Yes In Your 20s)

Getting your start in the workforce is nothing short of an epic challenge. Among the endless job applications, interviews and transitioning into full-time work, you’d be forgiven for not giving your retirement a thought whatsoever.

It turns out, the best time to plan for the end of your career is at its very beginning. In a world that’s rapidly changing, taking the initiative to invest in your long term future could mean you’ll be able to adapt to adversity with ease.

The state always has very significant responsibilities towards people who are going to be retiring in a few decades time… with things like the aged pension and other forms of social welfare, you can’t assume that they are going to be there [when you reach retirement age],” Senior Lecturer at UTS Dr. Hardy Hulley told The Cusp.

He goes on to say that it’s not a good plan to rely on welfare for your retirement – it’s better to manage risk and ensure you have your own plan, rather than rely on the state’s assistance.

While preparing for retirement might seem like a daunting task as a young person, there are a few basic things you can start to look at now, so you’re not stressing later, and it’s totally simple. Let’s start with super.

#1. Superannuation

In Australia we have compulsory superannuation, so it’s almost like we’re forced to plan for retirement. Whether you’re full-time, part-time or on a contract, your employer should be paying 9.5% of your salary into a super account. This is what’s called your Superannuation Guarantee (SG) and while your employer should be paying this correctly, it’s important to check your pay slip to make sure you’re getting the amount of super you’re entitled to.

Essentially, knowing about super, how much you should be getting and where that money is being invested is a great start as a young person looking forward to retirement.

“I think the important thing when you start working is obviously be aware of super,” career expert Jane Jackson told The Cusp.

“As soon as you get a steady job, contribute to super because by the time you are in your mid- forties and mid-fifties and you think ‘oh, I haven’t got quite enough in there,’ then you’ll start to feel quite stressed and anxious about it.”

Another thing to be aware of is how you might like to use the money in your super account to invest in other things. This is called asset allocation and it’s entirely up to you where you’d like to invest your money. Super funds will have a number of different asset allocation options ranging from conservative options (ie, more stable, less potential short-term profit) right up to more aggressive options (ie, less stable, more potential short-term profit).

When you’re young, you have the chance to be a little risky and invest in things that are less stable with the aim of increasing your money faster while ensuring you have a range of different investments. In more financial terms, that means you’re maintaining a diverse and balanced portfolio.

The thought process behind this is that when you’re young, you have more time to fix your assets later in life if risky investments don’t pay off.

“More aggressive asset allocation gives you a higher asset return – obviously at the cost of more risk,” Hardy Hulley said.

#2. Investments

Investment is another way to plan for your retirement and the younger you get involved, the better the money (or the return) that you could see. The benefits of investing in the long-term could see your money accumulate into a larger sum as time goes on. This is known as compounding return.

“Saving and investing is a really good thing to do and the younger you do it the better because of the effects of compounding return,” Hulley said.

“If you could start saving when you are 20 and investing in even a small amount … then the effects of this are going to be quite large, so the earlier you do it the better.”

“If you could start saving when you are 20 and investing in even a small amount … then the effects of this are going to be quite large, so the earlier you do it the better.”

There are many different ways you can invest your cash ranging from low-risk to high-risk options. Like super asset allocation, Hulley said that when you’re young you are able to take risks with your investments that may help to make a little extra money in the short term.

“[You could] try to invest in projects that are risky but with high potential returns because you’re young enough to be able to recover if things go against you,” Hulley said.

“Be entrepreneurial and look for opportunities to invest directly in things, that is when you are young of course, because as you get older the risks of doing those things tend to outweigh the potential benefits.”

#3. Saving

It might seem obvious, but setting yourself a savings goal is another simple, yet effective way to plan for retirement. If you get into the habit of managing your income and living within your means from an early age, this kind of behaviour will be become a habit.

“One of the most effective ways to save is if you write down everything that you spend on,” Jane Jackson said.

“If you look at how much you are spending and you write it down everyday for a month, every little thing that you spend, you will probably find there are some things that are not necessary expenses at all and if you cut back a little bit you might be able to save an extra 20 dollars or an extra 50 dollars a week.”

It all adds up over years and years. You might even be able to invest in higher-growth options once you’ve saved, such as property.

#4. Strategic thinking

Planning for the future does take a lot of effort and thought, especially when that particular future is half a century away. Thinking strategically about your career journey means assessing your true passions and making meaningful decisions about how to pursue these.

“If you work backwards in your career as an exercise then you would probably find that you would make very different choices than if you were moving forward in your decisions as most people tend to do,” Jackson said.

“If you think ultimately every choice that I make is going to have an impact on me towards the end of my career, you’ll probably choose a little more strategically … if you know what your true passion and direction could be then you could start to go on the right path.

“The reason thinking about retirement could be a good option for you in the early days is it helps you to focus on the actual journey that you could be taking rather than letting your career just develop.”

Long term thinking could put you on the path towards a cushy retirement. And it doesn’t need to come at a cost to your current every day life. So think, invest and strategise your way there, starting now.


Siobhan Kenna is a journalist from Sydney. She loves long runs, speaks German and enjoys a good yarn. Find her on Twitter @SiobhanKenna.

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