The headlines are often awash with stories of how younger people face an uncertain financial future given the economic hardships many have lived and worked through over recent years.

Even in Australia, which avoided much of the fallout from global financial crisis, there are concerns that younger generations are missing out on the opportunities available to their parents and grandparents. However, recent research has indicated that it may not be all doom and gloom for people currently in their 20s, 30s and 40s.

A National Australia Bank (NAB) study, compiled by the Australian Centre for Financial Studies and Monash Business School, has suggested that younger households are on track to enjoy a comfortable retirement. This is despite rising property prices and only modest increases in wealth for these demographics.

Saving for the future

One of the significant advantages younger people have on their side when building a pension pot is time. The Super Guarantee ensures individuals in the workforce will have 9.5 per cent of their salary directed into a retirement fund.

This figure is expected to increase to 12 per cent by 2025-26, meaning young employees will spend an entire working life making mandatory payments towards their golden years, unlike many of their older counterparts. A longer investment horizon provides a good platform to build long-term wealth.

According to the NAB report, a couple in their early 40s even earning incomes in the lowest quartile of the age group can still expect to retire with a super balance of approximately $472,000 by the time they are 65. The bank noted that this isn't far off the $510,000 it recommends is needed for a comfortable retirement.

Younger households have longer to prepare for retirement.

Getting started early

The research looks promising, although a number of assumptions are made within the study. First, the $510,000 benchmark is only considered a suitable amount for homeowners. Second, the report assumes investment returns and wage growth averages from the last 20 years will remain approximately the same into the future. 

Therefore, people should be as proactive as possible when saving for their retirement. Unfortunately, Roy Morgan Research from earlier this year showed many Australians believe it is too early to plan for retirement.

Nearly a quarter (22.4 per cent) of those aged between 40 and 44 stated retirement was too far away to begin planning, while nearly 40 per cent of 30- to 34-year-olds said the same.

Ultimately, it is never too soon to start preparing financially for the future. No policy is set in stone, so while the Superannuation Guarantee is currently providing a substantial boost to many people's super balances, savers may want to consider implementing a more comprehensive retirement strategy. 

If you'd like to discuss your retirement plans in more detail, please contact a member of our team. 

This publication is issued exclusively for the general information of clients and staff of Principal Partners (VIC) Pty Ltd. The contents are not a substitute for specific advice and should not be relied upon as such. Accordingly, whilst every care has been taken in the presentation of the publication, no responsibility is accepted for persons acting on this information.

The post Is the future bright for young people’s retirement plans? appeared first on Principal Partners.

There are just a few weeks until Christmas, which means families across Australia will soon be putting up decorations, hitting the shops for gifts and filling the cupboards with festive treats – some will have started already. 

However, the silly season often places enormous pressure on people to overspend, which can leave many with a debt hangover that lasts well into the new year. Finder.com.au figures predict Australians will spend $8.9 billion on Christmas gifts this year, an average of nearly $500 per shopper.

Seeing as it is the festive season, we thought we'd take some inspiration from Charles Dickens' A Christmas Carol and show you how thinking about your financial past, present and future can prevent you from racking up unnecessary debt.

You will likely be familiar with the story of Ebenezer Scrooge – a notorious misanthrope who only gets into the spirit of festive celebrations after the ghosts of Christmas Past, Present and Future show him the error of his miserly ways. Let's see how this could apply to your finances.

The Ghost of Christmas Past

Have you ever been forced to rely on credit cards to pay for gifts and other expenses at Christmas? You're not alone. Nearly two-thirds of Australians admitted to Finder.com.au that they use plastic to cover their shopping.

Sadly, 80 per cent of people have not cleared their Christmas debts by April the following year. If you're still saddled with last year's overspending, you may need to examine where you went wrong before you can resolve the problem.

Better financial planning can help you this year and in subsequent Christmases.

Consolidating credit card and loan debts can help you simplify payments and reduce the interest on higher-rate borrowing. You may also want to contact a financial adviser who can assist you with organising your finances.

The Ghost of Christmas Present

Once you have overcome your past bad spending habits, it is time to budget for this Christmas. Ideally, you will have set a budget earlier in the year and are well on your way to having enough money put aside to cover the festivities.

Nevertheless, Commonwealth Bank data revealed only 57 per cent of Australians set a Christmas budget, of which one-fifth fail to stick to it. You should assess how much spare money you have each month, decide the proportion of this you want to spend at Christmas and then set a realistic target to work towards.

There are several useful apps that can help you with your budgeting, including the Australian Securities and Investments Commission's TrackMySPEND software.

The Ghost of Christmas Future

After this year's fun is over, you may think you have plenty of time before Christmas 2017. But why not make better financial planning your new year's resolution?

A University of Scranton study published in the Journal of Psychology listed 'spend less, save more' as the third most popular pledge people make themselves each year. Unfortunately, the same research revealed just 8 per cent of respondents see their resolutions through.

One of the best ways to ensure you stay the course is to set measurable targets and track your progress. Book an appointment with an adviser who can help you prioritise your needs, set realistic saving goals and discuss your long-term financial objectives.

Hopefully, taking heed of the warnings of your financial past, present and future will help you prepare better for this Christmas and all subsequent Christmases in the years ahead.

This publication is issued exclusively for the general information of clients and staff of Principal Partners (VIC) Pty Ltd. The contents are not a substitute for specific advice and should not be relied upon as such. Accordingly, whilst every care has been taken in the presentation of the publication, no responsibility is accepted for persons acting on this information.

The post How to wrap up your debt this Christmas appeared first on Principal Partners.

Managing risk is an important part of running a business, but many people often forget to plan for unforeseen circumstances in their personal life. Accidents, illnesses or bereavements can strike at any time, which could have an impact on your financial security if the household's main income earner has to take a considerable amount of time away from work.

In worst-case scenarios, the death of a loved one could create significant money troubles for those affected in addition to the emotional strain. While you may be quick to insure your car, house and other big-ticket items and possessions, you may neglect a personalised risk management plan for yourself and other family members.

Underinsurance in Australia

Figures from Rice Warner showed the average amount of insurance required to cover a middle-income Australian family is $680,000, yet the median level of life insurance is just $258,000 – a gap of $422,000. According to Rice Warner estimates, the total underinsurance gap for the main life insurances was $1,811 billion in 2014.

So what risk management options are available? And how can you build a comprehensive strategy to ensure your family are effectively provided for in the event that your main source of income comes under threat?

Here are three types of risk management solution that can give you a higher level of financial support.

1. Life insurance

Australia's life insurance market is worth $61 billion in revenues, according to figures from IBISWorld. Rice Warner believes underinsurance for life insurance costs the country's federal government approximately $57 million, and the firm claimed typical superannuation funds don't meet the needs of many families.

Calculating what life insurance coverage you and your family require can be a complex task that takes into account many factors, such as your age, health, family size and earning potential. You should therefore discuss your needs with an experienced financial adviser who can find the right policy that's tailored to your specific circumstances.

An injury could prevent you from working for a considerable amount of time.

2. Total permanent disability cover

If you suffer an injury or illness that stops you from ever returning to the workplace you may be classified as having a total and permanent disability (TPD). Your disability may prevent you from doing any work at all or specifically a job that you previously had the training, experience or skills to perform. 

Statistics from the Australian Network on Disability show that approximately one-in-five people in the country have some form of disability. However, as the name suggests, TPDs are usually defined as disabilities that stay with someone for a lifetime and have a considerable impact on their standard of living.

3. Income protection

Effective financial planning should cover both short- and long-term needs. This means having a retirement strategy, as well as a safety net for the immediate future if you encounter money difficulties.

Income protection is a type of cover that provides you with financial security if you can't work due to temporary injuries or sicknesses. Unlike TPD insurance, which is often a one-off lump sum payment, income protection is usually paid on a monthly basis and most policies have claim restrictions. For example, you may receive 75 per cent of your regular salary over a specified time period, such as five years. 

4. Trauma Insurance

If you become ill, Trauma insurance can pay you a lump sum to free you from financial worry so you can focus solely on getting better. The types of illnesses that can be covered are:

• Cancers,
• Heart disease,
• Strokes,
• Multiple sclerosis,
• Alzheimer's,
• Motor neurone disease, and many more. 

Trauma cover will pay a lump sum benefit to help you stay on top of debts, pay for medical bills and generally help you maintain a reasonable standard of living while you're recovering.

Finding the right risk management strategy

It's impossible to predict the future, but that doesn't mean you should take your health and the health of your family for granted. This means you should seek advice on a personalised risk management strategy in addition to any retirement planning or wealth management needs you have.

To discuss your circumstances in more detail, please contact Principal Partners today by clicking here.

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For many Australians, planning for retirement is a job for the future. Our younger demographics in particular see the day when they finish work and need to draw on their savings as too far away to worry about.

However, it stands to reason that the sooner you start, the better the outcome. And still, almost half (45.6 per cent) of all Australians aged 25 to 29 consider retirement too distant to plan for, according to Roy Morgan Research.

Overall, nearly one-third (30.3 per cent) of our population aged 18 to 64 think this way; and the younger people are, the less troubled they are by the prospect of having only sub-optimal superannuation savings.

The problem is, when people do start taking retirement planning to heart, life can get in the way. A huge 44 per cent of 25- to 29-year olds and 42.8 per cent of those aged 45 to 49 said they are now too busy to do something about their financial futures.

Whatever your age, a small amount of effort now will almost always pay off when you get closer to retirement, and a little wealth management can make a big difference.

So, the time to start planning is now. You can begin by understanding a couple of simple superannuation options – employer-sponsored "default super" and a self-managed super fund (SMSF).

Become a superannuation super hero – your future self will thank you.

Starting superannuation

Even in a simple superannuation account, you can have a lot of say in your investments. However, according to consumer group CHOICE, 70 per cent of all Australians let their employer choose their super fund.

That's not always the smartest move. These employer sponsored "default accounts", whilst cheaper to set up, can potentially have higher fees and lower level of cost transparency than SMSF, meaning more of that retirement nest egg is going elsewhere. Remember, you decide who invests your money, not your employer.

Taking more control with an SMSF

If you want even more control over your investments, you may prefer to open a self-managed super fund. Whilst the majority of SMSFs invest in cash, property and shares, you have a greater variety of options and more flexibility when you manage your retirement savings yourself.

Despite greater control and investment choice, an SMSF normally requires an opening balance of $200,000 to $250,000 due to the one-off costs in establishing the fund. And whilst an SMSF has a slightly higher administrative burden, the term 'self-managed' is a misnomer given your accountant and adviser can assist in providing the necessary guidance for all administration, compliance, audit, management and investment aspects, leaving you to focus on the things which interest you the most; life, family and holidays!

Where do you start?

Do you need some assistance on choosing a superannuation plan? Get in touch with the wealth management experts at Principal Partners. We can cut through any jargon and help to guide you to a better financial future.

The post When is the best time to start retirement planning? appeared first on Principal Partners.