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Planning in your Thirties

Goals and Objectives in your 30's

Throughout the decades leading to retirement, the number-one emphasis should be on having a plan, first and foremost, based on agreed objectives and goals. In a decade which may include both your first mortgage and children, it's almost inevitable that you will wander "off plan", but you will be financially much better placed having a clear direction. We address some specific issues below.

Review your superannuation fund – return and costs (including consolidation)

It is all too easy to receive your regular, annual statement from your superannuation fund and file it away without reviewing the results in detail. You should take the time to review both the investment return and the costs detailed within the statement, including any insurance costs.

Once you have (carefully) chosen your super fund - and remember that you have a right to select the fund that receives your contributions - then we do not expect you to change the fund on an annual basis, depending upon investment returns. It is however important to understand the fund's comparative performance on a 3 to 5 year and 5 to 10 year basis and be prepared to move your funds if there is a consistent under-performance.

There are some publicly available tools which can assist you in this analysis. Remember also that moving to a new fund, "rolling over", is not difficult and in many situations you will receive assistance from the receiving fund. Similarly, if you have a number of superannuation funds, then you should be seeking to aggregate them in order to save on administration costs. Sometimes, it will be worthwhile maintaining additional funds, perhaps for access to insurance, but this is usually used as an excuse for inaction, rather than a reality.

In terms of fees, anything higher than 1% of your superannuation balance, unless a balance is very small or you have chosen some exotic investments, should be looked at very carefully indeed.

Taking more Investment risk

Given your age and that you are 30 years away from normal retirement, you can afford to adopt a higher risk/higher return approach than would be advisable for people closer to retirement. Just remember that higher volatility will normally go hand-in-hand with higher returns - but this shouldn't be an issue as long as you maintain a longer term perspective.

Investment Fund Options Characteristics

Growth: Around 85% in shares and property, the rest in cash or fixed interest

Expected annual return: 6.2% Volatility high, and expect a loss 4-5 years in every 20

Balanced: Around 70% in shares and property, the rest in cash or fixed interest

Expected annual return: 5.7% Volatility high, and expect a loss 4 years in every 20

Conservative: Around 30% in shares and property, and the rest in cash or fixed interest

Expected annual return: 4.2% Volatility high, and expect a loss 0 years in every 20

Cash: 100% in deposits with Australian deposit taking institutions

Expected annual return: 2.9% Volatility high, and expect a loss 0 years in every 20

Source: ASIC - Moneysmart

Although there doesn't seem much disparity between the (historic) returns available from Growth or Balanced funds above they can generate very significant differences over time. For example, assume you have an annual salary of $100,000 at age 30 which escalates at 3% per annum and that your superannuation guarantee payments are 9.5% of your income (now 11%) - starting with a superannuation balance of $70,000. At age 45, which is when we suggest you perhaps contemplate gently "turning back the dial" on the risk profile within your portfolio, to reduce some but not all volatility ahead of retirement, the different fund balances would be as follows:

Growth Balanced Conservative Cash
$450,281 $428,148 $368,708 $324,670

Just a few disclaimers - these figures are indicative, based on averages and they are gross of fees - and therefore not "real world". They are simply intended to demonstrate that large costs can attach to being too conservative when younger - an "opportunity cost". Equally, you can be a "long time retired", so no exposure to growth assets, even when in retirement, may also be inappropriate.

Protection - Life Insurance

A young family and mortgage often lead to individuals having their first thoughts about individual mortality, and how they can secure their family's future in the event of something happening. Life insurance is not a discretionary, "exciting" purchase, but it is absolutely fundamental in any planning to provide a safety net, particularly if you have a family - and the good news is that life insurance in your 30's is usually comparatively "cheap". That is particularly the case for life insurance provided within superannuation funds. However, you typically get what you pay for - and you need to take the time to very carefully review the quality and extent of cover of life insurance offered by super funds, particularly if your circumstances are at all unusual.

Income protection is sometimes not provided by superannuation funds and should also be considered, particularly if you are self-employed. Life insurance can actually be quite a complicated product, and certainly don't disregard using an experienced broker if your circumstances are at all unusual - no additional cost normally applies.

Saving and Salary Sacrifice

Some level of saving, if possible during this period, is obviously going to be useful, but we wouldn't necessarily recommend additional contributions into superannuation. Perhaps making additional contributions to your mortgage, with the ability to make redraws for example if you have children going into private education.

Insurance Bonds?

Not for everyone, but if both your income and marginal tax rates are high, you might consider taking out an insurance bond to provide later access to tax free lump sums - perhaps to later pay for private school fees. These are reasonably complicated products, and individual financial planning advice is an absolute necessity.

If you would like to arrange professional advice in relation to the above matters, please complete the Inquiry form below providing details and you will be contacted accordingly. You will receive a fee quotation in advance of any advice or services being provided.