5 Tips to knowing if your Nest Egg is in good shape (guest post by Kate Hillas)
What is a Nest Egg and why have one? The term “Nest Egg” means different things to different people. The Oxford Dictionary defines it as “a sum of money saved for the future”. We are now talking about SAVING! So, how do you know if you have saved enough?
The 5 tips below will let you know if your nest egg is in good shape.
Your savings plan
Set yourself a target amount and then devise a savings plan, keeping in mind the end goal. For example, if you want to save $100,000 as a deposit for your first home in a three year period, you will need to save around $600.00 per week or thereabouts. If that is not realistic, then re-calculate how much per week you can afford to save. Keep track of your savings and be strict with yourself. Don’t dip into those funds for any other purpose, except in the case of an emergency. Invest the money saved into an interest bearing account, to accelerate the growth of the fund.
Long term Nest Egg/Your Superannuation
For most people their superannuation fund is their sole nest egg for their retirement. But will it be enough? Get financial advice about the best superannuation fund for you. Superannuation is a complex area, both from an investment and taxation point of view. There are many rules and traps for the unwary. You should get professional advice both at the time of contributing into the fund and also when you are retired and are drawing down on the fund. HESTA explains different ways of drawing down from the fund and your financial adviser can elaborate on this.
How much do you need to retire?
In this day and age, with greatly improved healthcare, more and more people are living into their 100s. Perhaps you will be so lucky. The current life expectancy for men is 86 and for women it is 90. So, if you retire at 60, you will need to fund your living expenses for 26 years if you are a man and for 30 years if you are a woman.
Liam Shorte a superannuation consultant, in his article for MYOB has written a helpful article on budgeting for living expenses in retirement. He explains that the rule of thumb is that you will need 15 times your annual after tax living expenses. According to the Australian Financial Security Authority (AFSA) Retirement Standard released in September 2012, a couple needs at least $57,000 per year for a comfortable retirement. If your current superannuation contributions will not give you sufficient money to achieve your desired goal, you should consider salary sacrificing at an early stage to top up the fund. Even $50.00 per week can make a huge difference to the final amount in your fund when you retire.
Your most valuable asset is probably your home. You could consider downsizing and adding the surplus money left over from the sale of the family home and the smaller, downsized home, to your superannuation fund or, if it is enough, buy a small investment property. You should definitely consult your accountant about this. Given that you have to live somewhere during your retirement, you should exclude the value of your home from your retirement fund or nest egg.
What about your will?
Most parents want to leave something to their children in their wills, although there is a growing trend among retirees of living it up and “spending the kid’s inheritance”. However, if you belong to those parents who do wish to leave their children something in your will, you will have to factor this into your retirement budget and overall nest egg planning.
Kate Hillas writes for creditcard.com.au, she also has extensive experience as a solicitor in NSW, advising numerous clients, as well as acting for financial institutions in the area of debt recovery. She was a member of the NSW Law Society for 3 years. For the last 20 years she operated her own practice at North Sydney.