Ever since financial advisor Ellie Fordham appeared as part of The Project’s Millennium Retirement Experiment, she has been bombarded with people “stuck” on what to do to make sure they’re headed for a future. comfortable retirement.
For the experiment, millennials stood in front of a series of circles that led to a red line, and they had to step forward if a matter of their financial affairs concerned them.
The closer they got to the red line, the more likely they were to experience financial stress in retirement, with questions such as if they were renting, earning less than $ 62,500, having withdrawn money super early, or being likely to take more than six months on the workforce.
After airing on Monday night, Ms Fordham said the segment helped highlight the huge impact millennials’ choices have on their futures.
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One fact that really surprised program participants was when Ms Fordham revealed that singles will need almost $ 1 million in retirement assets, have no debt, and a fully paid house to avoid use the retirement pension.
She said the eight millennials who took part in the experiment were “very shocked at the factors that can affect them.”
“I think the biggest loss is that most of them really wanted to retire without depending on the old age pension and when they started to think about that $ 1 million benchmark and how to live comfortably retired, it was quite difficult for them, âshe said. .
âThen when you start talking about the impacts of being out of the job market for periods of time and not having contributions or working for yourself and not making contributions, they were pretty shocked. . “
One of the most surprising things to come out of the experience was the participants’ change of mind about the retirement pension, with many conceding that it should be part of their retirement plan in the future, she added.
While the Association of Superannuation Funds of Australia recommends that a bachelor can retire on $ 28,000 a year, Ms Fordham has warned that millennials need to think about what their lifestyle costs.
âWe know that by looking at the statistics on people’s living expenses, the cost of living for millennials is much higher than $ 28,000, so it’s all about figuring out how much you need or want to live on. retirement, âshe said.
“So this million dollar figure that we came up with is based on a need of about $ 45,000 per year in retirement, which means you have to have your own house or a fairly affordable standard of housing and that your debt must be repaid. “
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Many people had contacted Ms Fordham after waking up from the program, but were “stuck” as to what to do next.
The big message she wanted to get across is that it’s never too late to start making changes.
âI think the first thing to think about is what are you contributing to your super and one of the questions that didn’t get aired was that I asked attendees if they knew how much their super was spent. ? She revealed.
âYou need to check and make sure your employer contributions go into your super fund and talk to your employer to see if there are any plans available where you can contribute a little more and an employer can increase their super contributions as well. It’s pretty common in a lot of large companies, but it doesn’t happen everywhere.
Voluntary contributions are crucial, according to the financial adviser to Dozzi, a Brisbane-based company.
âA contribution is better than nothing. You can start by making a small contribution of $ 20 bi-weekly that comes from your paycheck and can choose to do it pre-tax through paycheck sacrifice contributions, so that gives people a tax deduction and impact on the payroll. take-home pay is not as important as they think it is, âshe urged.
Awareness is essential, she added, with people having to know what kind of investment their retirement pension is in and research the best strategy for them based on the risk they are willing to take.
âThe advantage for millennials is that they have time on their side. I see clients who are only five to ten years old to retire and they have to work a lot harder to close the gap, âshe said. âMillennials are 20 to 30 years old before they can access their retirement pension and have the opportunity to make small changes now. If they want to take a little more risk, they have the option of waiting for that investment cycle to end when the market slows down. The greatest asset they have is time.
People can contribute a maximum of $ 27,500 per year to their super, including their employer’s contributions, she explained.
She said that for those with an average Australian salary of $ 62,000, they would have to pay their super $ 400 a week to hit the cap, although she acknowledged that this might not be realistic for most millennials. who could save for a house or pay off a mortgage.
The good news, she said, is that an average earner already receives $ 119 per week from their employer in super premiums.
But she said the retirement pension is only part of Australians’ retirement goal, with home ownership and personal savings being a huge factor as well.
“A lot of people save for their retirement in different ways and not just through the retirement pension,” she explained,
âLogan, who was part of the experiment, ideally wanted to retire at 40. He had a little investment strategy where he was buying a property and I think he had direct investments in stocks and he had it. was using as a means of creating wealth because he cannot access his retirement pension at 40 and cannot access it until 60.
âIt’s a common way for people with specific goals or to retire early and invest differently.
One of Ms Fordham’s biggest concerns was the more than three million Australians choosing to withdraw at least $ 10,000 from their super as part of an early withdrawal program during the pandemic, which adds up to a total of $ 36.4 billion withdrawn from funds.
She said she had heard many stories of people using that money to buy personal items without considering the impact on their future.
âI’ve heard of people who bought cars, I’ve heard of people who pay credit cards, which maybe not as bad, but a lot of people are affected for years in withdrawing $ 10,000, âshe said.
âI think it was about $ 40,000 less and super in retirement for someone who was 30, so it’s hard when people didn’t realize it back then.â