Paul's Insights: 5 things I wish I was told about saving for retirement

1.    Super alone can’t do all the heavy lifting
I'm a big fan of superannuation, and from mid-2021 employer-paid contributions will steadily rise from 9.5% to reach 12% by mid-2025. That's great news.

The downside is that annual contribution caps on super make it hard to build very large balances. That's why it's still important to grow separate investments outside of super.

2.    Be realistic about returns
A study of global investors found human beings almost universally have overly high expectations for investment returns. In Australia, 27% of people expect to earn 10-14% each year on their investments, and that's just not realistic over the long term.  

As a guide to more likely returns, figures from SuperRatings show that ‘balanced’ super funds, which spread their money across a variety of investments, have earned an average of 7.3% annually over the last 27 years since the Super Guarantee was introduced.

Some years will dish up big gains. Some will bring losses. By investing for the long term, the highs and lows even out to deliver more achievable average returns.

3.    Keep an eye on fees
Investment fees demand just as much attention as returns. After all, you’ll pay fees regardless of whether an investment makes or loses money.

Importantly, high fees don’t guarantee high returns. In fact, the more you pay in fees, the harder your investment has to work to deliver the same after-fee return as a less expensive option.

4.    Don’t let emotions drive investment decisions
Seven out of ten Australians admit that their investment choices are driven largely by emotions. This can lead to some dreadful decisions.

It's possible to take the emotion out of investing by setting long term goals. Know what you're aiming for, and stay focused by building a diversified portfolio of investments.

Check the daily sharemarket results for news by all means, but don't make knee jerk decisions based on short term movements.

5.    Start today
No matter which life stage you're at, it can feel like you don't get paid enough to start saving and investing. 

The thing is, there are always going to be demands on your money. Getting into the habit of investing – even small amounts – from an early stage, makes it a lot easier to grow funds for retirement because compounding returns do more of the hard yards over time.

With planning and some commonsense, it's amazing how we can all get rich for retirement – slowly.

Give the InvestSMART retirement calculator a try to see if you are on the right track

Paul Clitheroe is Chairman of InvestSMART, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.