Your super and savings shouldn't be the only funding that makes up your retirement nest egg
Set goals and priorities before establishing your investments, as it allows you to pick investment options that best suit your needs
Consider your risk profile before jumping feet first into an investment
However, everyone has different life experiences and is in varying financial situations when they near retirement.
People also tend to think of their nest egg as just their super balance and savings combined. But there is a lot more to developing your nest egg, most importantly, making good investments.
Just having retirement savings and super as your only form of funding in retirement is like having all your 'eggs in one basket'.
Derek Armstrong, Principal and Financial Planner at Aged Care Financial Advisers in New South Wales, says diversification of investments is absolutely key when it comes to building your retirement savings.
Mr Armstrong explains that people look at superannuation as 'guaranteed', however, that isn't always the case, as superannuation is subject to market fluctuation through the year, just like any other investment. It shouldn't be a 'set and forget' approach either but it's wise to review all your finances and how you're tracking against your goals regularly.
"The lifestyle [people] choose needs to be monitored, reviewed, like any good investment," says Mr Armstrong.
"A lot of people leave it up to superannuation. But when you are looking at retirement, the whole thing about retirement is how can you generate income not to have to work.
"In that case, you have to start earlier, you diversify. You put away your 9.5 percent [into super], but also manage your debts or manage your cash flow."
Goals and objectives
Before you even start building your nest egg, you have to set your goals and priorities that you wish to achieve in retirement, which can direct the way you need to invest.
Mr Armstrong explains that financial planners tend to ask their clients for their end goal or main aim, so they can find the best financial strategies to get people where they want to be.
For example, if you are wanting to use $70,000 a year once you retire, you need to work out how likely that goal would be for you to meet.
Some important questions to consider are:
Do you have any debt? Or will you have debt in retirement?
What big expenses are you planning, such as buying a house, caravan, or car?
Are you planning to travel? Are they going to be small, interstate trips or large overseas trips? And how regularly?
Have you factored big expenses into your yearly spend?
Mr Armstrong says a lot of people just want 'peace of mind' when they retire, but that can mean different things to different people. If it's important to you, that could mean putting 20-30 percent of your money away every week.
"When you look at your retirement savings, obviously, you have to look at where you are putting away money for the future," explains Mr Armstrong.
"The shorter you leave it, the harder it is to achieve those objectives… Time flys.
"Your timing, your debt levels, you cost of living, these are the major factors that put barriers up for people. And then things like life issues such as divorce. You look at how to address these things, then you have a clearer vision, which means your goals are probably achievable, but your goals need to be reviewed on a regular basis."
Mr Armstrong adds that timing is really important when it comes to investing.
"Are you going to buy a million-dollar house when you are 45, then can you pay that off within the next 15 years? Not likely," says Mr Armstrong.
Setting a budget
A dreaded word for many, budgeting can be vital in your bid to build your nest egg. Developing a budget can best predict if you are on track to reach your goal or if you need to make major changes to how you spend your money.
"The way you harness your income is very important. Also understanding your spending habits, where money is going and how it is going," explains Mr Armstrong.
If you find cutting down your current spending habits is a priority, you need to assess what can be temporary cut or reduced so you meet your retirement goals.
You don't necessarily have to cut out your passions or interests altogether, it could just mean reducing your overall spend on certain areas for a period of time. For instance, reducing how much you spend on shopping, sports, or hobbies - every little bit helps!
Identifying where your money is going and how to change spending habits is a speciality of financial planners, who can then get you back on the right track.
Different investment options
With hundreds of investments options available to you, it can be difficult to provide a 'top investment option', says Mr Armstrong.
He explains that financial planners provide options, advice, and investment strategies depending on how it will benefit you personally in the short and long term.
You need to understand your risk profile and choose investment options that best suit that risk profile. Just because one option is considered a good investment for someone else doesn't mean it is a good investment for you.
"Each person has a different roadmap. All you can say is not one approach suits all. There is an obligation to ensure that we act in the best interests of the client and that is within the new Financial Adviser Standards and Ethics Authority (FASEA) guidelines," says Mr Armstrong.
For instance, many people consider owning property or stocks as a great investment option, but property can involve a high pay in for very little financial return and stocks are subject to market fluctuation from day to day.
"When choosing to invest, a cautious and considered approach is best. There is no one size that fits all when investing… All the best advice in the world has to benefit the person you are talking to," explains Mr Armstrong.
"You need to understand the goals you want to achieve and align your investments with those goals. It is worthwhile not capitalising in one investment. Put simply, don't put all your eggs in one basket."
Advice for when you start investing:
Financial planners and advisors can provide expert advice and assistance.
Assess your risk profile. If you frequently worry about losing money, then buying shares in a fluctuating market may not be for you. Nothing delivers big bucks unless it is riskier.
Receive proof that a suggested investment is a good investment before implementing the advice.
Align your investments with the goals you are trying to achieve.
Do research, whether that be with your financial advisor or with an investment option you are considering.
Don't invest in one area or only focus on one type of nest egg building option.
Watch out for get-rich-quick schemes or shiny advertisements, they are generally always too good to be true.
A good financial retirement plan is vital when investing.
Have available cash reserves that would last one year in case of an emergency or unexpected event.
Consider the pros and cons of an investment before jumping all in. For example, will this investment make you a return straight away or in a number of years? Does this investment suit your financial needs or risk profile?
If you currently don't have a lot of money to put towards investing, start small first and then start building up your investment portfolio. From there, you can start diversifying your investments.
According to Mr Armstrong, the biggest tip for when you want to build your nest egg is that "investing and financial planning needs to start at a younger age."
Disclaimer: The information in this article is general in nature and does not constitute legal or financial advice. Readers should seek their own personal legal and financial advice from a suitably qualified practitioner.
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