5 steps for Gen-X to retire well

The great thing about being a Generation Xer is that we’ve still got youth. At least in a relative sense.

Sure, I’ve forgotten a few words to some Cold Chisel songs, but not because of dementia. I struggle to keep up with my kids sometimes, but I’m still arthritis-free. And I certainly cringe when I see that sand-blasted brown leather jacket in my closet. But they’re a damn sight better than seeing flared, baby blue, disco pants.

Yup, Xers have still got plenty over Baby Boomers.

For a start, we’ve got 20 years. That generally gives better health, a longer life expectancy, and more time to “get retirement right”.

There is no Gen Xer (those born after 1964), who can’t still make a massive difference to their retirement.

Twenty years is an awesome period of time to have up your sleeve. It’s more than enough time to create the retirement you want. Or, at least, a far better one than is currently awaiting you now, if you take Back to the Future’s DeLorean Time Machine to check out what you’re doing at retirement..

Here’s how you are going to make that happen.

It’s going to involve a little sacrifice. A whole lot of little sacrifices, to be more specific. To be precise, many, preferably all, of what follows.

Step one – own your home sooner.

Pay it off faster. Pay extra each month. Use your offset account properly.

A bit of both can easily help you pay off your home 5-10 years sooner, freeing up cash to really ramp up further investments, or salary sacrifice, or to buy investment property, as outlined below.

Step two – up the super risk.

Sadly, almost embarrassingly, it wasn’t until I was in my 30s that I actually properly looked at my super fund investments. For you, it’s still not too late.

How is your super invested? Still in a typical default fund? That generally means you’re in what’s known as a “balanced” fund – roughly 60 per cent shares and property and 40 per cent cash and fixed interest.

Take a risk profile test. (There’s a free one on my website, on the “about us” page.) Whatever risk profile you are, go a little riskier than that. Why? Super is still, for Xers, an ultra-long-term investment. And the more you can stand having in shares and property, the more likely your super fund will grow.

If you come out “balanced”, go “growth”. If you come out “growth”, consider going “high growth”. If you come out “conservative” or less, then are you really an Xer?

Step three – salary sacrifice to super.

Putting an extra $5000 or $10,000 a year into super will save you in overall tax.

Previous generations were able to, literally, shovel money into super in their 50s, when the mortgage was paid down and the kids were, largely, off their hands.

Gen Xers will never be able to do that. We’ve got strict limits that are unlikely to be substantially lifted.

Xers, from their late 30s, need to put extra money into super. Getting an extra few thousand dollars a year into super will help, until such time as you’re also able to contribute the maximums (currently $35,000 for the over 50s) a little later in life.

Step four – start an investment plan.

Keep it simple. Use something like an index fun, an exchange-traded fund or a listed investment company. Invest regularly, monthly is preferable. It doesn’t have to be much, but make it automatic.

Or go a bit harder. Consider gearing if you understand the risks. An investment property? Certainly a big risk that will be right for some.

Whatever you do, understand the “no pain, no gain” principle. Don’t be a pussy. Commit to your savings strategy, as hard as you can.

Step five – Drive a cruddy car

Just don’t update it as often. Simple. If you switch updating your car from every 2-3 years to every 5-7 years, you will save between $10,000 and $15,000 a year, in depreciation and interest costs. That will pay off a large chunk of your house, or allow you to salary sacrifice to super, or contribute to your investment strategy.

Tip a little extra into each of these five strategies each and every year … and you’ll be blown away in a decade at the difference it has made.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E: bruce@brucebrammallfinancial.com.au.