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.
Nearly a quarter of those aged between 40 and 44 stated retirement was too far away to begin planning.
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.
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.