You may read my previous article suggesting several steps investors need to take to ensure they have a comfortable retirement. In this article, we look specifically at what someone aged 50 can do.
The first thing you need to do is visit MoneySmart website and put your details into the superannuation calculator, particularly your current superannuation balance, age and expected retirement age. For many of us that will be either 65 or 67 unless we have the luxury of retiring early.
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Rate of return
You'll also notice you have several options include fees and expected rate of return. Several studies have shown that investing in Australian shares have returned 10% over the past 30 years, while one study going back to 1900 found Australia posted 7.4% returns – after inflation – or around 10% annually.
Investing in cash could see you go backwards in real terms after inflation. For those with at least 5 years investing ahead of them, Australian and International shares will likely be the best asset class for you to park a big chunk of your funds.
Fees
If you are paying a financial advisor thousands, platform fees and then managed fund fees, you could see fees of 2% or 3% of your assets each year. That will significantly subtract from your ending amount, as the calculator will show.
Cutting the fees down to a minimum or close to zero is possible, but will involve you doing some of the work yourself. Given the importance of your retirement, you might want to take a hands-on approach anyway.
Self-managed super fund
That means avoiding high fee managed funds, platform fees and financial advisor fees if you can help it.
Several self-managed super fund (SMSF) administrators allow investors to set up an SMSF for free, charge a $700 annual fee for auditing and tax returns, and annual costs can be kept below $2,000 – no matter what size your portfolio – if you are careful, are willing to take a hands-on approach and don't trade too much. That's an annual fee of 0.2% on a $1 million portfolio, or about 1/10th the fees if you are paying 2% in fees.
Next you'll want to start investing.
Concessional contributions caps
But firstly, you need to know how much you can contribute to super each year – before you'd be liable for excess taxes which can be huge. Currently, the maximum amount is $30,000, and as I noted in my previous article, contributing $25,000 to your super each year should see a 50-year old person earning $80,000 a year, with a $50,000 starting super balance, hit $1 million by the time they reach 65.
Superannuation guarantee
From 1 July 2015, employers should be paying a superannuation rate of 9.5%. That means that the 50-year old on $80,000 should be getting $7,600 paid into super over the year. The difference, around $17,400 needs to come from you each year.
That means some serious saving and sacrifice now to benefit later. The problem is, if you don't start doing the hard yards now, you're going to have to save more, much more, than $17,400 each year.
And the best time to start is now.
