In the book ‘The Richest man in Babylon’ securing your future refers to two key areas;
Ensuring an income to provide when you can't/ or don’t wish to work anymore - what we now have the luxury of calling retirement.
Providing income for your family if you are not around anymore or have to stop working earlier than planned due to illness or injury.
So far we have focussed on strategies to address the first point, having enough funds for an age where you can’t work or the flexibility to choose when you stop work – essentially making the option to work a lifestyle choice rather than something you have to do. A further strategy to assist in achieving this is Superannuation.
In Australia we are lucky enough to have superannuation; a mandated part of our employment benefits where 9.5% of our salary paid into a superannuation fund for us. You may not know this but the funds paid into your super account are most likely invested for you through a default investment option. So they may already be working for you even though you can't touch them.
You can't access your superannuation until you meet a condition of release; the main ones being:
- Reaching preservation age at age 56 (depending on your year of birth); or,
- being over 60 and ceasing work.
The key aim of superannuation is to provide for you in retirement
Whilst it is a great structure it's unlikely to be enough to support you for all your retirement years. So you really need to add to it; this can be done through salary sacrifice (pre-tax contributions) or adding in surplus income as a non-deductible contribution (post tax contribution). If you have been saving your 10% or more every year until you start thinking about retirement, you will have a great amount of flexibility available to you and have amassed wealth that gives you options and income to provide for you in retirement.
The other way to ensure your families wealth and income, is to protect your life & income against life's unfortunate occurrences. We know there are many things along the road that can stop you from being able to save your 10% or maintain your mortgage repayments; and it makes sense to insure against as many of these occurrences as possible.
There are four different types of “life insurances” or “personal insurances”, each one designed differently to either pay a lump sum or an income stream should one of life's various setbacks occur. The idea being that you take out insurance when you haven’t accumulated your wealth so that should something happen you still have funds to fulfil your needs and dreams.
For example, income protection insurance would assure a partial income if you cannot work again due to illness or injury. It is likely you already hold some of these personal insurances in your superannuation fund, but they cannot all be held there and the amounts have not been personally calculated for your lifestyle needs. More information on the types of insurance can be found on the MoneySmart website.
Once you have built up enough wealth you won't need these insurances as you will become self-sufficient, you will have enough wealth to provide an income when you cannot work. That time and the amount of wealth is different for everyone based on their lifestyle needs. Whilst you are starting out on your wealth journey personal insurances are extremely important - think of it as protecting your future and your goals.
So, in assuring your future income continue with 10% savings, increasing it when you can, think about topping up your superannuation when your cashflow allows. To provide income for your family in the event you are not able to, start considering your personal insurances. This needs to be done before you find yourself in this situation, putting the right cover in place is something to address whilst things are still going right, hopefully you will never need to rely on it. Work out what is the right amount of insurance to protect what you haven't yet achieved and your ability to go on and achieve it!
Keryn Batsilas is a financial adviser with over 10 years of industry experience. Keryn works with a team of financial professionals as a Senior Associate for McQueen Group; consulting to businesses and professionals on all things financial. She loves sharing her passion and knowledge of financial matters to help people live the life they want to live.
Twitter: @KBatsilasWebsite: kerynbatsilas.com.au/