To all you spring chickens out there, we’re sure that retirement seems like a lifetime away. But it’s never too early to start planning for it.
You might think that retirement will be a piece of cake, right? Surely, it’s just as simple as watching your super grow, saving a bit when you get older, and then cashing in your pension when you retire. Well… not quite. Let’s break it down.
Where does money come from when you’re retired?
Your retirement income could be funded by a number of different sources, including:
1. Your superannuation fund
2. Investments
3. Savings
4. Inheritance
5. Pensions/other Government benefits
It’s important for young Australians to learn more about all of these things, but we get it … why worry about something that seems ages away, especially if you're still learning how to manage your money right now?
You may not have as much money now as you will later in your life, but right now you are richer in another asset: time! With more time in your back pocket, you can save more slowly and consistently and let compound interest do the hard work for you.
What is compound interest?
When talking about savings accounts, the principal amount is the initial lump sum amount you put into your savings. Interest is the amount of money a bank or other financial institution will pay you for holding your money in that savings account. Compound interest is the interest you get on the money you initially deposited and the interest you’ve already earned. It’s kind of like a snowball. Your balance increases because you get interest on your interest!
Still with us? If you need an example, check out the moneysmart.gov.au compound interest calculator and plug in some numbers.
Key takeaway: Compound interest is awesome, so start saving as early as you can. Your future self will thank you.
The longer you wait to start saving, the more you will need to save later. And later you may have a mortgage, children, credit cards and personal loans, so your “larger income” might not necessarily equal “more disposable income”, as many young Australians assume.
Looking for more tips on saving? Check out our other blog posts – we’ve got it all, from saving on your wedding, power bill, and even dining out.
Please note: this information is general in nature and does not take into account your personal circumstances or objectives. You should consider this before acting on any of the information contained.
