Long-term thinking is required when it comes to saving, even when you’re retiring! You could enjoy 20-30 years in retirement or even more, so that’s a long time to plan for. Smart saving now ensures the holiday you want to take will happen, perhaps changing your car or even helping out your grandchildren.

In today’s low interest rate environment, to make the most of your savings you need to consider options other than banks, credit unions and building societies. Over the long-term, the returns on Deposit Accounts are unlikely to match the returns you could enjoy from investing in a Unit Linked Savings Plan.

But before heading down a route you may not have travelled before, let’s look at some simple steps to help you make the right decisions:

1. Set your goals

The first step should always be setting your savings goal. What are you saving for? Remember that old saying, “When I retire, I’ll buy a new car and that will see me out”? That’s certainly not realistic if you are retired for 30 years.

2. Think in timeframes

Timeframes should be broken up into short, medium, and long-term. As a general rule, you should satisfy your short-term needs first, followed by your medium-term, and so on.

  • Short-term - the next year or two
  • Medium-term - three to five years
  • Long-term – anything over five years

It is recommended that everyone has an Emergency Fund (of approximately 6 months’ pay) put aside, before planning for any long-term savings.

3. Keep an eye on inflation

Put simply, inflation is the rise in price of goods and services. We all know that things seem to cost more with every day that passes, but how big of an impact does inflation actually have?

Even with relatively low inflation, you steadily lose buying power on any money you just ‘hold onto’. To stay even, you must invest at rates of return that at least match inflation rates. Your real rate of return, in terms of the buying power of your money is: your savings or investments rate of return, minus the inflation rate.

For example: if inflation is 4% per year and your return is 5% per year (after tax), you only gain 1% in real buying power. If your return after tax is only 3%, then you lose 1% in buying power.

The Returns Rate is important in saving, to ensure your savings will meet your target goal and, more importantly, match or beat inflation. You would be surprised what a difference that 1% extra could make to your nest egg if you are saving over the long-term.

4. Accessing your money

It is important to know if there is an Exit Penalty associated with your chosen savings plan, if you wish to withdraw your money early. The normal rate is a 5% penalty in years one to three, followed by a 3% penalty in year four, and a 1% penalty in year five.

5. Monitor your savings online

In today’s digital age it is important to frequently check your savings online. You should have easy access to current fund values, contribution history, encashment values and so on.

6. Find fair charges & flexible contributions

You should ensure that the maximum amount of your savings is ‘working for you’. Any associated charges should be simple and transparent, so seek this kind of plan out. Also being able to vary your contributions at any given time is very important, so your savings can be adjusted easily to meet your budget if there are any unexpected changes.

7. Balance Risk vs Reward

Undertake a ‘risk/reward’ analysis to help you decide which is the best investment strategy for you – one that balances the potential for higher returns with the level of security you feel most comfortable with. Should you use an investment strategy or select your own funds? If you choose an Investment Strategy, your savings will be invested in a mix of funds which match the balance of risk and reward that you are most comfortable with.

8. Retire right – you’ll only do it once!

The right saving plan is out there, even if finding it is difficult. Speak to the experts, who will help you achieve your optimum financial security as you open the door on your retirement adventure.