How Much Money Do You Need To Retire In Australia? | ETF | Real Estate | Super | SMSF | Investing

I want to break down exactly how much you should have in savings as well as super based on your age bracket.

There is so much noise out there around:

• What you need to have to retire properly; and
• What you should be saving.

I'm going to show you how investing can change what your retirement could look like, whether it's early retirement or you wait till you're 65 to 70.

So if you're interested in what my thoughts are, definitely keep reading.

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Overview of Investment Options

There is so much information out there. Some suggest that you should have a multi-million dollar portfolio while others suggest that you are completely fine because the average is so below what you think it is, and so you'll survive.

Clearly, you are here to not just have average returns. 

You're not just going out there and saying: I just want to have average savings to have an average life.

You might be reading this to go:

“How do I retire early, Ravi?” 

“How do I retire on my own terms?”

Now, let's first address:

• What the averages look like; and
• What you could do to surpass that.

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Believe me, it's actually not that hard to get ahead and set yourself up properly.

So let's cover off what savings by age should look like. Here's a little table that we can go through. 

We're going to focus on the average number. 

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Under 17 -  you should have about $3,000.

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For the majority of you that watch the channel based on my analytics, we're sitting in the bracket between 18 to 44. So these are going to be the most important.

The average savings for people between the ages of 18 and 24 is $5,147.

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It then bumps up to about $7,995.

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Then bumps up to $11, 967  between the ages of 35 and 44.

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Now, I don't know about you, but that sounds really disturbing.

Why?

Because you're most likely in a position where you're probably having to pay rent or you own your own home, and that would mean that that would be your emergency fund. 

In some cases, you might have some young kids that now rely on you as well. So when I see $12,000 being your average savings, that simply isn't good enough.

I know that not everyone can be in this position, but wouldn't it make more sense to say: Okay, I need to change up my living standards and situation so that that number is closer to about $40,000 or $50,000? Because this will provide you more peace of mind.

Now, what I want you to really focus on are:

• How much you need as an emergency buffer; and
• How this gives you more peace of mind and reduces your financial stress.

If you're looking at these average numbers and saying: Hey, you know what, I'm actually doing alright because I've got $30,000 instead of $20,000, or I've got $20,000 instead of $12,000, given the cost of living crisis we're going through right now and how things are getting even harder to achieve when it comes to home ownership, you really need to start focusing on making moves now.

This is why investing is so important.

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Importance of Emergency Fund

Now, outside of investing, you should still have an emergency fund, and that is different from person to person. It all comes down to your risk appetite and what you're actually investing into.

Example:

If you have one investment property, you might have an emergency fund of $15,000 for that one property. However, if you now have, say, a portfolio of five or six properties, your emergency buffer may be a lot bigger.

Why? Because if you have multiple problems at the same time, which although highly unlikely could still happen, in that case, you would definitely need an emergency fund that could cover those expenses.

Equally, if you're someone who has young kids and maybe your family is quite big, then you'd probably be looking at emergency funds based on per child or per person that lives in your household.

If these are things that you aren't thinking about, I really urge you to start thinking about them because we just don't know how bad the cost of living crisis can continue on for. This is why it is so scary, especially if you're living in one of the most expensive cities in the entire world, such as Sydney or Melbourne.

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What Should be your Average Super Balance 

While savings are important and get you from day to day, your super balance is what most people are focusing on when it comes to retirement.

A lot of Australians out there are under the impression that: Hey, it's okay if I just live my best life, and then eventually I'll get to 65, and I'll have my super to rely on.

However, if you aren't thinking ahead and actually investing further into your super, then you might be in for a nasty surprise when it comes time to retire.

Can you imagine how hard it would be if you get to 65 and realise that you don't have enough money, so you have to continue working? This one promise you told yourself actually just failed, and that's why we need to be looking ahead of time.

You might be in your 20s, and thinking:

“Why do I need to care about investing?” 

“Why do I care about super?”

Now, this is from the Australian Retirement Trust, and what we're looking at is a survey from 6,000 Australians.

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The survey revealed that:

• 63% of their members were not sure they will have enough set aside for retirement.
• 37% felt confident in their financial future.
• 54% of members have spent time worrying about their finances at work.

This is the key concern here.

That financial stress, while people don't think money is everything (it's not), if that financial stress exists, trust me…it is going to take over your entire world.

Now, what we can see here is the average balance of men and women.

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Looking at the image above, the reason for the big disparity is because traditionally, we've seen women:

• Staying at home, taking care of the kids.
• Taking maternity leave.
• Not coming back into work.

This is why we've seen this number so different.

However, we are starting to see that number change and improve when it comes to the average women's balance relative to the average men’s balance.

As you can see:

• The average balance of men that fall under the 55 to 64 age bracket is $326,000, while for women it is $246,300.
• By the time both get to retirement at 65 to 74, men are looking at $435,900, while women at $381,700.

However, as soon as they get to 75 and over, those numbers start declining.

Now let's address that part.

Why would they decline after having gone up for so long?

Well, it's because:

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This means you need to rely on the returns you get from your super balance to justify, or at least pay for, your lifestyle. This is why those numbers drop.

Now, you can only imagine that if that's from 75 and over, what happens every 5-year increment? If you get to 75, then 80, then 85 to 90, and now with life expectancy increasing, what does that actually mean?

To answer this question: It means you're going to run out of money.

You're going to find yourself having to limit your budget around what life looks like at that age bracket, when the reality is that you've worked so hard for the last 50 to 60 years only to get into that position, and this simply is not good enough.

So with super, you've got two options:

Option one: You can keep it in an industry fund and have it be invested for you.

or…

Option two: You can go down the path of a self-managed super fund.

With a self-managed super fund, you need to go through an accountant to get all that stuff set up. You may also watch this video I uploaded on my Youtube channel. This will help you learn how you can use your super balance to go out and invest in real estate.

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Note: I'm not suggesting this is the right option for you, but you just don't know what you don't know. 

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Now, that takes care of your super.

You’ve also got to be thinking about your cash balance or emergency fund outside of super. So I'm going to show you:

• The importance of simply investing a little bit; and
• How you can really ramp things up and accelerate that growth in your balance by going out and investing in real estate.

Here’s an example of:

• Using $20,000 if you had it in savings; and
• Growing it at 5%.

What would that look like in 30 years' time if you continue to invest only $500 per month, and it compounded yearly?

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Now, this scenario here might not suit you, but it could be a balance lower than this or higher than this.

However, this is the importance of compound growth. If you simply started this at the age of 30, and you went and did this for 30 years, on autopilot, this is what it would look like:

Your initial balance of $20,000 plus the additional deposits you've made over 30 years being $180,000 would mean that you would have a future balance of almost $500,000.

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This is easy mode. If you really think about it, if you're in a position where you:

• Make a good income; and
• You budget well,

Over the period of 10 years, you should be able to save at least $20,000.

If you go and save $20,000, you go and invest it into, say, an Exchange-Traded Fund (ETF), you would go out there and say: "Okay, every month, I'm going to contribute 500 bucks no matter what."

That then continues for the next 30 years, and that would then be welcomed with a really nice surprise 30 years later with $500,000.

Now one thing to keep in mind: although $500,000 sounds great today, it probably doesn't buy you anywhere near enough in 30 years' time.

What I mean by this is that $200,000 30 years ago sounded amazing, and it actually meant that you were quite wealthy because at that point you could probably buy a couple of homes in Sydney.

Now, that same amount means nothing.

You can't buy a house in like 99% of Australia with that sort of money, and that's why we need to really carefully go and plan out our retirement early.

So if you look at this and say: "$500,000? That sounds great!"

However, it probably is worth closer to about $200,000 in today's purchasing power, which then means it's not that great. This is why we need to look at alternative accelerators, but you can definitely combine your accelerator strategy with this as well.

Now let's look at what real estate could do.

Let's say:

You bought a property for $500,000 at an average growth of 5% for 30 years, compounding yearly. What would that look like?

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Well, this would mean that one property is now worth $2.1 million.

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This is on the basis that:

• You pay no debt off
• You continue with interest only
• You refinance to continue that interest only period
• Your rents continue to go higher, but so do all your costs

You end up in a position where that $500,000 property is now worth $2 million. You could simply sell that one property, pay off all of your debt, and still be in a position where you probably have about $1.5 to $1.6 million, which is three times more than the first example I showed you.

What’s even crazier is in this example, you're not contributing 500 bucks every month towards holding that investment.

One thing to consider though is that in this case, you are starting at a higher balance, and the reason for that is because you're using leverage.

Now, I will go on to say that this is not possible for everyone, because in example one, you only needed $20,000.

Meanwhile, in this example, you're probably needing somewhere closer to about $100,000, and not everyone is in that position.

That's why you need to look at all of your options as a whole.

• You can look at super and self-managed super funds.
• You can look at your personal situation.
• You can buy with people.
• You can use guarantor loans.

A lot of these concepts might be new to you, that's why you need to read the blogs I post on our website and subscribe to my YouTube channel.

However, if you want to go out there and execute on this with speed, then definitely contact my Search Property team by booking a FREE discovery call.

I'll catch you guys in the next one.

Thank you!

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