Retirement roadmap started early can achieve financial freedom 11 years earlier: adviser

“Data shows that starting retirement saving strategies earlier in your working life will help you get ahead of the curve and have a balance at the end that can manage the various stages of working life from career breaks, mortgages, periods of higher and lower income,” Ms Hurley said.

“The compounding impact of sacrifices made early and consistently over a long period is a lot more manageable than doing it later in life.”

Ms Hurley said statistics show that the average age of new SMSF members is continuing to decline and there is a growing popularity for SMSFs among the Millennial and Gen X demographics.

“The younger you are the more competing challenges there are for your money and we are living in an environment of increased living costs, inflation and volatile markets, so it is difficult to get the attention and commitment to think of the longer term view of what someone’s retirement may look like when they’re young,” she said.

“But ultimately, if you are only concentrating on each stage of life, the retirement stage gets put back further and the sacrifices people have to make as they are starting that journey just get bigger.”

Ms Hurley said it is important that advisers are actively engaged with their younger clients early to set them up for success.

“Advisers need to make the effort in engaging younger people and have conversations around their roadmap to retirement and whether an SMSF may fit as part of that roadmap,” she said.

“We know that SMSFs have a lot of advantages and access to strategies not available in other super vehicles so that is why starting education earlier is important.”

Ms Hurley said using modelling is an important tool for advisers to demonstrate the long-term value of short-term sacrifices.

“The FIRE model – Financial Independence Retire Early – does not necessarily have to involve superannuation savings, but data shows that it does help to achieve the balance that is needed for a comfortable retirement more quickly,” she said.

“This methodology also has other disciplined habits that are required to get you to a retire early stage – living frugally, saving a higher percentage of salary and being very studious with the investments that are being made with a focus on cashflow generating investments, reinvesting those, getting rid of debt,” she said.

She continued that Class modelling shows that using an SMSF as part of a retirement roadmap will help achieve retirement goals 11 years earlier simply due to the tax benefits in conjunction with the protection mechanisms and compulsory super that come into play.

Ms Hurley said modelling also shows that encouraging clients to start thinking about their retirement earlier, and making contributions to their fund, either an industry fund or an SMSF, in their 20s compared to later in life can have significant advantages.

“What our modelling shows is that a dollar invested earlier in life is worth three times what it would be if it was made closer to retirement. To get to that goal of around $1.27 million at retirement, someone who starts earlier in their career only has to contribute around $370,000 compared to someone who starts later in life who has to contribute $870,000,” she said.

Ms Hurley said it is important for advisers to show younger clients strategies they can use to save both inside and outside of super including salary sacrifice, which can also help with tax minimisation, catch-up concessional contribution and carry forward rules.

“While SMSF is not for everyone, it resonates well with young people who aspire to achieve FIRE,” she said.