“Time” Is The Key To Retirement Success: How Planning Ahead Makes A Difference

The saying goes, “time is money.” But when it comes to saving for retirement, time can be even more valuable than a high salary itself. In this blog post, we outline just how, with proper planning, time can be the key to a successful retirement.

Recently I found myself meeting two new clients that both had the same goals. I have outlined them below:

  • To retire by 65
  • Have a combined super balance of $1.2 million
  • Pay off their mortgage by the time they retire

The infographic below is their current situation:

As you can see, Couple A has almost double the amount of superannuation than Couple B, and a much smaller mortgage. However couple B has one thing up their sleeve. A 10 year time advantage.

Amounts required to save by both couples to retire and achieve their goals at 65:

Couple A Strategy Contributions:

  • Super contributions of $3K/month 
  • Mortgage extra repayments of $3K/month
  • Total required – $6K/month or $72K/annum 

Couple B Strategy Contributions:

  • Super contributions of $1K/month 
  • Mortgage extra repayments of $1K/month
  • Total required – $2K/month or $24K/annum 

Couple A has to has to triple the contributions to their mortgage and superannuation strategy compared to Couple B. Meanwhile Couple B has quite a manageable contribution target each month. 

The conclusion?

If you want a retirement without stress, plan ahead and use time to your advantage.

How can time have such a big impact on our retirement saving goals?

The longer you have till your goal’s target date, the longer you have to take advantage of the power of compounding. The power of compounding applies to many of our assets, including our home, superannuation and share portfolios. When we reinvest our earnings back into our investments, they have the potential to grow at an exponential rate over long periods of time.

Of course, life doesn’t always go to plan and there are many other factors that can impact our ability to save for retirement. However, if you’re able to take advantage of the power of compounding, it can make a massive difference to your retirement savings and strategy. 

How does the power of compounding work?

Compound interest is often referred to as the ‘eighth wonder of the world’. It’s a simple concept, but one that can have a huge impact on your long-term wealth.

To understand how compound interest works, let’s look at an example. Let’s say you have $10,000 and you invest it at an annual interest rate of 5%. After one year, you will have earned $500 in interest and your total investment will be worth $10,500.

Now, let’s say you reinvest your account balance of $10,500 at the same interest rate of five per cent. After two years, your investment will now be worth $11,025

As you can see, each time you reinvest your earnings, they have the ability to earn interest on interest which can help your investments grow exponentially over time.

Can you believe in 20 years, that $10,000 will be worth $26,533 without contributing another dollar of your own money! 

What I try to inform my clients of is just how much easier it can be to save for retirement if you allow yourself more time to prepare, plan & save for retirement. The power of compounding only works if we reinvest our earnings back into our investments, and this takes time to accumulate. 

Why you should be thinking about your retirement

Depending on your age and financial position, your retirement may seem like a long way off or in the not too distant future. However, it’s never too early to start thinking about your retirement planning.

Even if we disregard the incredible rewards that compounding may bring, there are other advantages to starting your retirement planning early. 

Another key benefit is simply the ability to have a longer time to save. As you can see by Couple A and B above. Couple B will be able to have an easier retirement savings strategy than Couple A, who hypothetically may have to sacrifice quite a bit to ensure they achieve their retirement goals. If they can’t hit their retirement goals by age 65, they may need to consider working longer, reduce their lifestyle expectations in retirement or sell the family home to access equity to help with their retirement goals. 

Humans naturally have a hard time grasping just how much money we will need in retirement, as it can be quite a long way off. This can lead to us either saving too little or too much for our retirement.

I believe that by starting the conversation earlier with clients and getting them to think about their desired lifestyle in retirement, we can help them make more informed decisions on how much they need to save and make sure they have the right financial strategy in place. 

Why Superannuation is your friend when retiring

Superannuation is an incredible tool that allows us to save for our retirement in a tax-effective way. 

The current contribution limits are $27,500 per year (called concessional contributions – which are pre tax contributions) and these contributions are taxed at a reduced rate of 15%.

You are also able to contribute up to $110,000 per year in after tax contributions (called non concessional contributions – which are after tax contributions). These contributions are not taxed when they are contributed into super. 

The tax rate in retirement while you are working is 15% which is usually lower than most clients “normal” tax rate. This tax rate can lead to a saving of up to a 30% tax saving for some high-income earners. On top of this when you retire from work over the age of 60 or reach the age of 65. You are able to hold your superannuation account balance (up to certain limits) in an account where the tax rate is 0%. Making super the most tax effective account you can hold your investments in. 

In addition to this, your super allows you to invest in a wide range of assets, including shares, bonds, property and cash. This diversity helps to protect your investment from market volatility and ensure that you have a well-rounded portfolio.

How much money do I need to retire comfortably?

While it is a bit like asking “how long is a piece of string?”, as each person’s retirement goals & living expectations are different. The ASFA Retirement Standard attempts to benchmark the annual budget needed for Australian to fund a comfortable retirement.

The portfolio asset balances required to fund the above annual costs equate to $640,000 for a couple and $545,000 for singles. This is because as long as you don’t spend it all at once, your superannuation continues to grow even once you are retired. 

This does assume that you own your own home, as mortgage or rental payments are not factored in. It also assumes that based on the above asset values that you would receive Centrelink age pension income in retirement which would help fund some of your annual living expenses. Meaning that not all of the income figures outlined above for a comfortable retirement would be coming from your investment portfolio. 

Catalyst Wealth Group helps clients plan for their retirement, whether it is five or twenty years away. We understand that everyone’s situation is unique and as such, we tailor our advice to each client.

Having time up your sleeve when things don’t go to plan

Life is not always predictable and as such, we need to have a bit of a buffer in our retirement planning in case things don’t go to plan. Medical issues, temporary unemployment, family members needing financial help can all put a strain on our retirement savings.

This is why it is important to factor in a contingency plan when working out how much you need to retire. This could be in the form of extra savings, equity in your home or having insurances in place. You’ve worked hard your whole life, so you want to make sure that you can enjoy your retirement, no matter what life throws your way.

If you start planning your retirement early, you arm yourself with the best chance for a comfortable retirement. You also give yourself the peace of mind knowing that you have a plan in place and are prepared for whatever life may throw your way.

The Takeaway

Retirement is something most people look forward to for much of their working lives. Whether that means more holidays, more time spent with family, or just a slower pace of life in general, it’s important to plan ahead to make sure you can enjoy your retirement the way you want to.

In this blog post we highlighted why “time” is the key to retirement success and how starting your planning early can make a world of difference. We also discussed the benefits of superannuation and how much money you may need to retire comfortably.

We hope you are able to take away some insights that will help you in your retirement planning. Every person’s financial situation and needs are different, so it is important to seek professional advice that is tailored to you.

When things don’t go to plan, or your circumstances change, never underestimate having a professional in your corner.

If you would like to discuss your retirement planning needs with one of our qualified financial advisers, please don’t hesitate to

At Catalyst Wealth Group, we are here to help you plan your retirement and provide you with the peace of mind knowing that you are on track to achieve your goals. In addition, you will have a professional on your side to help you navigate life’s unexpected events. Get in touch today.