By the time you’ve reached your forties, you’ve probably managed to buy a home - or at least furnish one, stash a fair amount in your super account and you may even have some savings.
“Your forties are all about balance,” says consumer finance specialist Lisa Montgomery, adding that it’s a transitional time for parents as their kids become more independent and the rising costs of teenage children competes with the rising pressure of retirement savings.
There’s a different dynamic for singles and couples without children, and other financial pressures on single parents – but your forties should be a planning time, she says. “You’re entering a time when you need to start to save and plan for retirement.”
Everyone in their forties faces the same challenge: it’s time to work out what you will need in retirement and how you’ll achieve that. Montgomery says that many people feel a lot of pressure to get that right – which can have a contrary effect. “That pressure can be paralysing - I call that ‘paralysis by analysis’ - there's so much pressure and so much information, that we don't do anything because we can’t decide on the best option.”
You still need a plan
If you don’t have a plan, your forties are the time to get one – and this can also be a time when you’re particularly vulnerable to scammers. Beware of get-rich-quick schemes or suspiciously-high dividends. The harsh reality is that getting ahead financially requires a measured and consistent approach. Make sure you’re financially literate: try free online programs to skill up. The Benevolent Society and ANZ offer the Money Minded program for important basics, or you can try the free First Time Investor course at the Australian Stock Exchange to get sound advice on share trading. The principles are pretty simple – save smart, avoid bad debt, manage your cash flow, invest wisely, earn more and prepare for emergencies and your retirement.
The harsh reality is that getting ahead financially requires a measured and consistent approach.
“The best way to save is to have a combination that suits you,” Montgomery says. “Invest in property, invest in shares, make sure there’s also some cash.” Liquidity is important in case of emergency: if all your savings are tied up in assets, you can easily get into debt.
Start preparing for retirement
Fear not – your forties are the time when you get to be a superhero! You may not be able jump tall buildings in a single bound but you can be a hero to your future self by having a superannuation plan for your retirement.
One of the smartest things you can do is check your super fund’s performance and fees regularly against the market. “Many people will self-manage their super funds because they feel that's going to give them an edge, but what's interesting is - a lot of people who move their money out of traditional funds into self-managed super funds often leave it in cash, and right now, that's at around 1 per cent earnings, which can also have an impact on long term growth of that nest egg,” Montgomery says.
Carers and the super gender gap
Welcome to the sandwich generation. Although smart parents have taught their kids to make their own lunch by now, many Australians in their forties are increasingly torn between caring for their own growing families – and helping to care for ageing parents.
And all that care comes at a cost, largely for parents: women in particular choose to delay their return to the workforce or work part-time so that they can provide those key carer responsibilities. Over 7 per cent of all Australian women aged 35-54 are defined as primary carers for people who are either ageing or have a disability. ABS figures show that woman make up 70 per cent of primary carers.
Many Australians in their forties are increasingly torn between caring for their own growing families – and helping to care for ageing parents.
Carer responsibilities, along with lower earnings generally (on average, women earn 16 per cent less than men) impact on women’s retirement savings. The Australian Human Rights Commission 2012 report on the Retirement Savings Gender Gap noted that half of all Australian women aged 45 to 59 have $8,000 or less in their superannuation funds, compared to $31,000 for men.
With our population ageing and retirement savings so low, governments are increasingly concerned about the future cost of pensions – and recent policy decisions, raising the age where people can access retirement benefits, reflects these concerns.
Lisa Montgomery says that retirement is changing and most people will be expected to continue to earn money well into their older years. “People will probably embrace a portfolio lifestyle which will probably include one or two days of paid work a week.”
You’ll need cash
By the time you’ve reached your forties you’ve probably worked out that things don’t always go how you planned. Take a lesson from the board game Monopoly: have cash on hand, don’t tie it all up in assets. Having to liquidate assets to pay off your real-world creditors is a losing game-plan.
Set up some purpose-driven savings accounts to help manage your money – look for a regular transaction account for day-to-day expenses and standard monthly bills and have another easily-accessed account with higher interest for your emergency fund.
Remember as your life circumstances change, you’ll need to re-address your emergency fund – the more stuff you’ve got and the more you’re responsible for will mean you need to have more set aside for when things go pear-shaped or perhaps there is an opportunity too good to pass up. Make sure you find a banking solution that offers the best balance of flexibility as well as returns – and check that your health, personal and property insurance is sufficient.
Divorce the debt monster
Don’t become accustomed to being in a committed relationship with debt. It’s easy to turn a blind eye to what debt is doing to you when you’re in a cushy job and cosy home and all is smooth sailing. In life, as in love, things can change quickly and your present position of prosperity may be about to have the rug pulled out from under it. Don’t put yourself in a precarious position by exposing yourself to monstrous debt.
2014 ABS figures showed an estimated 40 per cent of Australians leaving their job in 2013 did so because they were either retrenched, their job was made redundant or was seasonal or temporary, or left due to ill-health or injury.
Future-proof your income
It's harder to change careers or retrain in your forties than in earlier decades because the added weight of your commitments can stop you having the agility to respond to a changing economy. Keeping your communications and technology skills nimble and up to date is a must. Acquaint yourself with how new technologies will change and impact your chosen career and industry.
Don’t fall in to the financial trap of assuming that your salary is going to grow at the pace it did in your twenties and thirties.
Don’t fall in to the financial trap of assuming that your salary is going to grow at the pace it did in your twenties and thirties. Research shows that wages growth tends to slow down in your forties and plateau at around turning 50 so plan accordingly.
The family home
As your family grows, consider moving to a larger home: but keep in mind that your huge family home could turn into a barn if and when you’re an empty nester – and with adult children staying at home longer, you may need to make some adjustments. McCrindle research shows that 23 per cent of Australians aged 20-34 live in the parental home, but in Sydney and Melbourne, it’s 27 per cent.
There are cultural considerations around leaving home for many families. “Families from Italian and Greek backgrounds, for example, don’t see it as unreasonable that adult children remain living in a house together with several generations,” says Lisa Montgomery.
She predicts a demographic shift in populations for major Australian cities such as Sydney and Melbourne because property prices are so high that few young people will be able to afford to live in these centres unless supported by families.
Another trap for the forty-somethings is to over capitalise in household renovations and remodelling – only undertake projects that bring tangible improvement to the value of your property. Consider using your home as a cheap form of credit to consolidate higher interest loans or for income-generating investments. However, it’s never a good idea to turn your equity in your home to give your lifestyle a short-term boost.
Don’t forget to live
For all the importance of saving, Lisa Montgomery warns that getting the balance right isn’t just about money management – it’s about a holistic approach to life. Don’t forget to nurture your relationships and look after your health.
“A lot of people get it wrong: they take their focus off growing their children, put it straight onto saving for retirement - and they forget to actually live their life.”
Savings can even play a part there, she adds: set up a ‘fun fund’ for holidays and leisure. “You really do need to live.”
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