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3 reasons you can't retire on your savings account

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In these times, a savings account simply isn't going to be enough to plan your wealth management. Here are three reasons why you need to do more.

Are you confident in your savings? Long term financial planning in Australia is key for a comfortable retirement, but many people find it difficult to save. An ANZ survey of financial literacy from 2015 found that only 57 per cent of respondents were able to save money most weeks, and only 26 per cent of people kept a record of their budget. When it comes to Australian wealth management, a savings account isn't necessarily enough.

For those whose wealth management plan does include regular savings, even that may not be enough in this day and age. Here are three reasons to think outside the box when you want to unlock your wealth.

1. Returns are on the decline

Research from the Reserve Bank of Australia (RBA) shows that while the general household savings nationwide are about 10 per cent of total income, this ratio has begun to drop in the last three years. There was a number of factors cited as causing this, among these the decline in interest rates.

Over the past two years, the RBA has slashed the cash rate to the point where it is now at a record low of 1.5 per cent, and there is even media discussion of negative interest. As a result, banks and lenders are also dropping interest rates. This means returns on traditional savings are relatively meagre, and Australian consumers need to look elsewhere for decent return on investments.

2. The goal posts for wealth management in Australia continue to move

The Association for Superannuation Funds Australia (ASFA) states that for a comfortable individual retirement, Australians need $43,062 per year. That means, for a decade of retirement, you'd need to have close to half a million dollars tucked away. That's not easy.

Meanwhile, Suncorp research pegs the average Australian household savings at $427 per month. Over 40 years, that works out to $204,960. As the retirement standard keeps increasing, the goalposts are being shifted and regular savings isn't enough for successful wealth management in Australia. So what is the answer?

Take the first step

3. The wealth management alternatives are better

While household savings are not enough to retire on, the options that this saving enables might be. The aforementioned low interest rates have opened the door for house hunters to secure affordable home loans in Australia, which can provide returns in both cash flow and capital gains.You have a wealth of options when you look further afield than your savings account.

Meanwhile, investments like equities or the stock market can provide riskier but higher returns on your money, and even contributing extra to your super can induce significant contributions from your employers and the government.

 

The reality is, a savings account isn't enough

The reality is, a savings account isn't enough. Taking your wealth management by the horns can yield significant dividends down the line, but it has to be done right. This is why professional financial advice is so important. You can plan strategies tailored to your income, living situation and even your dream home.

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