The Goldilocks principle: Finding balance when building wealth

A financial advice client recently discovered that their net worth had quadrupled in just four years.

It's an interesting case, and it begs the question: when is enough really enough when it comes to accumulating wealth?

The retirement benchmark

We are often warned that most Australians do not have enough to their name to fund their retirement.

The Association of Superannuation Funds of Australia (ASFA) suggests a minimum superannuation balance of $595,000 for singles and $690,000 for couples is needed to retire comfortably at age 67.

And that's if you own your own home. Renters will need substantially more.

Personally, I'm not comfortable with these amounts. I find that these figures may be conservative given that so much can - and does - change.

Depending on your current age, there could be several inflation outbreaks before you retire, which could be similar (or worse) to the past three years. In which case, these figures will fall well short.

Are you wealthier than you think?

At the other extreme though, it is entirely possible that you will wind up with more than you actually need. As some retirees are discovering, that can come with regret.

Many Australians are technical millionaires though - often without realising it. The Australian Bureau of Statistics estimated average household wealth at $1.584 million in 2024 - almost double the $858,000 figure recorded in 2014.

Much of these gains have been from soaring property values and the equity gains therein, particularly the family home. Superannuation is another factor.

Then there are cash savings, investment returns, employee share schemes, vehicles, household valuables - all assets that can be easily overlooked and undervalued when people try to calculate their wealth.

How can you determine what 'enough' is?

When attempting to make this calculation, it pays to be cautious. A conservative return on investments is generally 5% (typically excluding fees and taxes).

As advisers, we say life expectancy is 87 and add 5 more years. But the number of people living to 100-plus grows every year.

The thing is, personal circumstances change over time (death, divorce and health being prime candidates). So too do regulations - the touted tax changes on super balances over $3 million being a good example.

Market fluctuations can also work for or against you, depending on whether they are in an upward or downward cycle at the time you retire. As such, it's worth adding extra reserves to cover the unexpected.

Avoid sticking to a single number which can create undue anxiety and a false sense of security. Explore one number for Scenario A, another for Scenario B and so on. Also, preferably, seek advice.

Ultimately, what constitutes enough will be different for everyone. Be clear on your goals, your idea of what a comfortable lifestyle looks like and consider seriously how you spend money.

Importantly, think about what makes you happy, such as spending time with family, supporting charitable causes or seeing the world. Then you can plan accordingly.

Safeguards and strategies

If you do find yourself with more than you need, don't squander that good fortune by sharing it unwisely or, perhaps, gifting it too early.

Tax-effective strategies can ensure more goes to the intended beneficiaries, such as Testamentary Discretionary Trusts, additional contributions into your own or your spouse's superannuation, tax deductions on charitable donations and a considered approach over legal ownership of assets.

Additionally, up-to-date estate planning can help avoid conflicts, minimise tax and costs for beneficiaries and ensure your wishes are respected.

That includes having a valid and current will, nominated beneficiaries in superannuation and trusts, company succession plans for business owners and Power of Attorney and Guardianship provisions.

And whether you have a few dollars or billions to your name, without proper safeguards and contingencies, you could wind up in the same place: broke.

There is no substitute for quality investments. Diversification is also key, to smooth over volatility across industries and investment types. There is also more to weigh up than growth alone, such as how and when to withdraw funds, risk weightings, investment cycles, and government intervention.

Closer to home, implement safeguards over your health such as life and income protection insurances and your relationships such as pre-nuptial agreements or Bank of Mum and Dad loan contracts.

And secure your financial foundations with a spending an investment plan and a solid emergency fund.

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