What does it mean to be financially secure?

August 4th 2020 | Categories: Money, Family & Relationships | Financial Planning |

The emphasis on financial security is of particular focus amidst the Coronavirus pandemic and for many, it will change the way we spend, manage and save our money for the rest of our life. When something unexpected like a pandemic occurs, the importance of having an emergency fund and money put aside to help cover the cost of bills and living expenses is evident.

You can access our COVID-19 page here for further insights, support and resources.

Understand how a financial adviser can support you with your need for financial security. Get in touch.

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What does financial security mean to Australians?

Overall, financial security encompasses the ability to have income stable enough to cover your expenses and to cover financial emergencies and future goals. Irrespective of age and income, financially secure individuals must be able to support a standard of living, now and in the future, and money should not be the cause of regular undue stress. Things like the economy, interest rates and government benefits can all play a role in determining how financially secure we are as an induvial and as a Nation.

According to various research, financial security for Australians is categorised into being able to live a modest lifestyle and a comfortable lifestyle after retirement. The financial requirements for both the lifestyles differ and come at distinct costs. All in all, most Australians want to live a rewarding and comfortable life post-retirement.

Where do Australians stand in terms of financial security?

The Association of Superannuation Funds of Australia (ASFA) is the peak body that manages and researches the superannuation industry in Australia. ASFA accumulates data and statistics around retirement and has defined a modest and comfortable retirement lifestyle for Australians. According to ASFA, at the age of 65, modest lifestyle costs around $40,054 for a couple, and a comfortable lifestyle costs around $61,522 for a couple.

Depending on your situation, to fund your retirement you may rely on either:

the Age Pension,
accessing a lump sum or regular payments from your superannuation fund,
investments that pay you income such as investment properties,
additional savings, or
a combination of any of these.

According to a recent study by Challenger Retirement Income Research, only 45% of retirees above the age of 65 were using the Age Pension in 2018, and of them, only 25% were drawing a full Age Pension. On the other hand, of the retirees above 80 years of age, over 80% were accessing the Age Pension.

What Does it Mean?

The research indicates that the reliance of Australians on Age Pension is decreasing with time. More and more Australians are now inclining towards superannuation to obtain financial security post-retirement.

However, there is a huge scope for improvement. While there is a strong and steady increase in the numbers of ‘self-funded’ retirees, Australians still fall short of the balance in their superannuation accounts to fulfil their full needs for a comfortable retirement. According to AFSA Research conducted in October 2017, average superannuation balances for men were $270,710, and women were $157,050 at the time of retirement.

Therefore, your dependence on Age Pension to live a financially secure life post-retirement has not vanished completely. The expansion to superannuation funds and salary sacrificing are steps in the right direction towards achieving the desired level of financial security for most Australians.

Steps to achieve financial security

Paving the path towards financial security is an important part of any financial plan and is something you should carefully consider.

While your individual goals may vary, you must ensure that you are on the right path to reach your personal financial goals and your very own feeling of financial security.

Start saving early

The key to financial security lies in starting early. Savings follow a butterfly effect, and even the smallest change in lifestyle, spending habits, investing regime, and savings can bring about the biggest changes and help you to be closer to your financial goals. You may decide to make voluntary super contributions from your salary while you are working to help build your retirement fund and in doing so may also be able to utilise tax benefits. Any lump-sum payments you receive such as tax returns, inheritance or gifts could also be considered to invest or put aside for your future.

You can read more on this in our article “5 ways to save for retirement”

Pay off debts

The sooner you pay down debts, the sooner you can get on track to being financially secure. While debts such as home loans on investments properties may build up part of your long-term investment strategy, other debts such as personal loans and credit cards should be a high priority in paying down. This will avoid you spending unnecessary money on interest and will enable you to have more money available to contribute to your savings goals.

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Find new means to add to the retirement income

There are various ways you can create additional income for your retirement. A great way to do this is through investments; you may decide to buy an investment property or two that can provide you with an income over time, or build your portfolio of stocks and shares. You may decide to do this inside or outside of your superannuation. These forms of long-term investments generally grow in value over the years and can help provide a passive income both now and into retirement.

You may be interested in our article “ways to invest your money”

Increased reliance on superannuation

Based on the results of many pieces of research conducted by AFSA and ASFA, an increasing number of Australians are relying on their superannuation to make their retirement more comfortable and secure. However, there is still a gap between the current average and how much is required to independently fund your retirement. That can be bridged by adding more of your salary to super through higher employer superannuation guarantee payments, salary sacrificing, and other concessional contributions.

Seek financial advice:

Overall, the process of retirement management, cash flow management, investment management, and attaining financial security can be quite overwhelming for the uninitiated. It will also always be loaded with emotion – this is your personal future, goals and dreams we are talking about! The best strategy is to seek professional financial advice and plan your finances efficiently to ensure that your income is protected in times of emergency or otherwise.

You can read more on this in our article “financial advice in action”

The meaning of financial security may be dissimilar among individuals, but the overall essence lies in mental peace; the feeling that your income is enough to cover your expenses and you can live a financially secure and comfortable life even after you stop earning. The goals may differ, but the savings journey of all passes through smart planning, saving, and investing to reach your end goals.

If you’re serious about taking your finances to the next level speak with one of our advisers to find out how we can help you reach your goals and dreams!

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.