Working individuals are encouraged to cease work in all countries and cultures and spend their last days in relative comfort after a certain age. However, as the famous adage goes, “money doesn’t grow on trees” – the individuals also need to make arrangements to enjoy their retirement period. Investing in certain portfolios or financial plans is a good step; however, if you do not understand the plans’ details, it is better to take the help of seasoned professionals in planning investing for retirement. It would be more fitting to suggest any step.
According to the legal guidelines of Australia, there is no fixed age for retirement. Moreover, no present laws also dictate any age for stopping work. It is up to the individual when they will stop working or start giving less time to their profession. However, an Australian citizen can get their pension at the age of 66 years and six months currently (in effect from 01.06.2021). Therefore, one can consider this age as the provisional retirement age for Australia for calculation purposes.
It is better to start saving for retirement as soon as possible. Moreover, you have to keep track of the inflation and the market stability of the invested programs. Experts suggest keeping them in long-standing funds and safe investments – however, you can take a controlled risk with it up to a certain degree. In each attempt, please take the advice and help of the most experienced professionals in this field.
There are several exciting retirement investment options available like SMSF and advertised by the different companies present in this country. However, finding the appropriate plans, judging their pros and cons, and selecting the most fitting plan takes a lot of search and analysis. Although you would decide to invest the money you have accumulated, you can look through the pointers given below:
Taxes suck away a part of your earnings – and at retirement, you may not have an active one, so it is better to choose an investment portfolio that has a “tax-deferred” feature so that your money can enjoy a tax–free growth. So, please select a 401(k) or an individual retirement account (IRA) than an online brokerage account – which provides flexibility but has no option for saving tax.
IRAs and 401(k)s are of two types – traditional and Roth. Traditional accounts will allow you to subtract your contributions from your taxes at present, submitting income taxes to when you make withdrawals in retirement. In comparison, Roth accounts will give you the chance of investing for retirement with money whose tax is already paid – like online brokerage accounts. However, when you take money out from a Roth account at retirement – you won’t have to pay any taxes. Although, you will have to follow several rules before you can invest in a Roth account.
Both of these accounts have contribution limits but will help save thousands of dollars, free of tax, for retirement over your working life.
Everyone knows the three core asset classes – stocks, bonds, and cash. Asset distribution is the plan to decide on the amount of money you will invest for retirement in these three classes without disturbing your financial balance. For example, if you are comfortable with a little practical approach but prefer easy handlings, try a simple asset allocation model for retirement by designing and investing in two or three mutual funds or exchange-traded funds (ETFs). It is easy to invest and save in this model.
You have to select one fund that targets growth – like an S&P 500 index fund or an international stock index fund (ISIF). Another fund should create established income. Moreover, branch out with a third broad–market ETF or index fund. Using a couple or three funds will provide diversification and relieves you from having to pick and choose from the huge number of stocks and bonds.
Afterwards, you have to decide on the balance of your portfolios by dividing the investments between two or three stock and bond funds. Incidentally, you have to judge your risk-absorbing ability and your current age. According to experts, one can diversify their assets according to the following table:
|Cash / Cash equivalents
|20 – 30 years
|90% – 100%
|0% – 10%
|80% – 100%
|0 – 20%
|65% – 85%
|15% – 35%
|45% – 65%
|30% – 50%
|0% – 10%
|Over 70 years
|30% – 50%
|40% – 60%
|0% – 20%
You would need to re-balance your portfolio according to your desired risk profile and age. As per the table above – the investments become more conservative and fixed – income basis as the age increases. However, this is a suggestion, and you should decide accordingly.
The stock market provides strong returns on average; however, its trends and nature are not linear or predictable. Some investors prefer to get steady, consistent income from stocks that pays dividends. Others prefer stocks that provide quick profits. For retirement investment, it is better to build a portfolio with high dividend-paying stocks.
You will get a steady share of profits from the dividend-paying companies in the form of monthly, quarterly, or annual payments – in the form of stocks or cash. Although it is not guaranteed, a properly solvent company will pay sustainable dividends over long periods.
Although, allocating your entire retirement portfolio balance to dividend stocks would not be worthwhile. Dividend-paying companies will not offer the same growth potential as new, smaller companies. It’s always easier to double the share value when it costs AUD 10 than AUD 1000.
Real estates also provide substantial return upon investment. However, the rate depends on the area, the presence of utilities, and several other factors. Check whether your risk-taking potential supports real estate. Rentals are also another viable option – however, there is an ongoing cost for maintenance of the properties. So, whatever the way, you have to evaluate the advantages and risks thoroughly before investing. It’s also okay to seek the advice of experts in investing for retirement to minimize errors in the process.
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