Building and securing your nest egg

It's common for people to call their retirement savings their 'nest egg'. It's your accumulated savings that should get you through retirement and, hopefully, help you lead a comfortable, carefree life once you retire.

However, it's best not to put all your 'eggs' in one basket and ideally, super should not be the only money you have or have invested in.

Diversification is absolutely key when it comes to building your retirement savings, says Derek Armstrong, Principal and Financial Planner at Aged Care Financial Advisers.

He explains that a lot of people look as superannuation as "guaranteed", however, that isn't the case. Superannuation can be subject to market fluctuations, just like any other investment.

"The lifestyle [people] choose needs to be monitored, reviewed, like any good investment."

"A lot of people leave it up to superannuation. But when you are looking at retirement, the whole thing about retirement is how can you generate income not to have to work,” says Mr Armstrong.

"In that case, you have to start earlier, you diversify. You put away your 9.5 percent [into super], but also manage your debts or manage your cash flow."

When you begin building your nest egg, you need to understand what you are working towards or trying to achieve in the first place before you can start setting any investment strategies.

Mr Armstrong says the first thing any financial planner will do with a client is figure out what their end goal is. If you don't have any specific goals, then you need to lock down how you want to spend your retirement and what that is going to look like.

For example, if you are wanting to use $70,000 a year once you retire, you need to ascertain how likely that would be for you.

Important things to consider are do you have debt in retirement? What about big expenses? Are you intending to buy a caravan or car? What about travel, has that been factored into your yearly spend?

Some people just want peace of mind when they retire, but what does 'peace of mind' look like to you and how important is it to you?

"When you look at your retirement savings, obviously, you have to look at where you are putting away money for the future," explains Mr Armstrong.

"The longer you leave it, the harder it is to achieve those objectives… Time flys. "Your timing, your debt levels, your cost of living, these are the major factors that present challenges for people. And then there are life issues such as divorce. In planning, you have the opportunity to look at how to address these things, then you have a clearer vision, which means your goals are probably achievable, but your goals need to be reviewed on a regular basis."

Mr Armstrong adds that timing is really important when it comes to investing.

“I would say when it comes to building your nest egg, where you are at in your financial journey will impact on the type of investment you make,” says Mr Armstrong.

Budgeting is another big step for people when nest egg building. Budgets can help you figure out whether you are projected to reach

your goal or if you need to start making major changes to how you spend your money.

"The way you harness your income is very important. Also understanding your spending habits, where money is going and how it is going," explains Mr Armstrong.

If you have to work on saving more money, you really have to assess what spending can be cut so you can meet your goals.

Whether you spend lots on shopping, sports, or hobbies, you need to see if this is viable for you and your budget plan. You don't necessarily have to cut out those passions and interests altogether, it could just be reducing your overall spend to help you in the long term.

A financial planner will be able to identify where your money is going and how you can change your spending habits to get you on track for building your retirement nest egg.

Mr Armstrong explains that there are hundreds of investment options available to you, and there is no such thing as a 'top investment option'.

A financial advisor can help you find options and investment strategies that actually benefit you in the short or long term. You may not have an idea of how to invest or you may have areas that you want to invest in, either way, a financial planner will find an investment that meets your risk type and is the best option that suits you financially.

"Each person has a different roadmap. All you can say is not one approach suits all. There is an obligation to ensure that we act in the best interests of the client and that is within the new Financial Adviser Standards and Ethics Authority (FASEA) guidelines," says Mr Armstrong.

Just because you like the idea of owning property or stocks doesn't mean it is necessarily the best investment option for you. Property has a high pay in and very little financial return and stocks are subject to frequent market fluctuation.

"When choosing to invest, a cautious and considered approach is best. There is no one size that fits all when investing . . . All the best advice in the world has to benefit the person you are talking to," explains Mr Armstrong.

"You need to understand the goals you want to achieve and align your investments with those goals. It is worthwhile not capitalising on one investment. Put simply, don't put all your eggs in one basket."

◆ Engage a financial planner for expert advice. ◆ Understand your risk profile. If you are really worried about losses, buying shares in a fluctuating market might not be for you. Nothing delivers big bucks unless it's riskier and you need to be prepared for if there is a bad outcome.

◆ Ask for proof that an investment is actually a good investment. Just because something is a good investment for other people doesn't mean it is a good investment for you. ◆ Understand what you are trying to achieve and align your investments with these goals. ◆ Research the investment option you are considering. ◆ Don't invest in one area or only focus on one type of nest egg option. ◆ Watch out for get-rich-quick schemes they are usually too good to be true. ◆ Good planning is vital when investing. ◆ Have cash reserves for one year in case something unexpected pops up. ◆ Consider the benefits of an investment before jumping in. Will this investment make you a return? Does this investment suit your financial needs or risk profile? ◆ If you don't have a lot of money to spend, start small and build yourself up so then you can start diversifying your investment portfolio.

According to Mr Armstrong, the biggest tip for when you want to build your nest egg is that "investing and financial planning needs to start at a younger age".

Disclaimer: The information in this article is general in nature and does not constitute legal or financial advice. Readers should seek their own personal legal and financial advice from a suitably qualified practitioner.