By Lynette Murray, Platinum Adviser
Are you turning fifty soon? This is the decade where you start to think about retirement and whether you will be able to afford the retirement lifestyle you dream of. There are a number of money milestones you should be aiming for if you want a ‘lifestyle by design’ rather than a’ lifestyle by default’.
- Reduce debt
You don’t want to head into retirement still owing money. Aim to pay off any loans as soon as you can - student, car, credit card or mortgage. Start with the one that has the highest interest rate and work your way through. Investigate consolidating debts but remember it’s not a cure all for bad spending habits. Being debt-free will reduce your cost of living in retirement. In your fifties its important to begin to live a lifestyle that will allow you to accumulate as little debt as possible.
Now is the time to re-visit your insurances. It’s important to make sure you have the right level of coverage for your age and stage. Your life, health and income protection insurance all need to be reviewed to make sure the level of cover is still appropriate. As you get older the chances of a major health event increase considerably. Insure for those things that can have a major financial impact on your family, such as not being able to work, death or disablement or losing your house in a fire or flood.
- Bank of Mum and Dad
In your fifties your children will probably be nearing the end of their schooling and becoming less dependent on you. This is often a time when you begin to think about whether you should contribute to their university education, save for a wedding, help with the purchase of a car or assist with a deposit on their first home. Just like airlines instruct you to put on your own oxygen mask first, your financial safety instruction should be to look after your retirement first. It will be more of a problem for your children if they have to support you financially in your old age than if you fail to buy them their first car.
- Have a Will and an Estate Plan
If you don’t already have a Will, now is the time to do so. Speak to a lawyer or financial planner about an estate plan, appointing an Executor of your Will and a Power of Attorney to ensure your wishes are carried out.
- Reign in any overspending
This doesn’t just mean the expensive shoes or dinners out, it’s important to regularly review whether you are getting the best value for money when it comes to what you pay for electricity, phone, private health insurance and bank fees. You don’t want your hard-earned retirement income to be eaten up by unnecessary fees.
- Invest wisely
As you near retirement age you will have less opportunity to make up any losses. Ensure that your risk profile for any investments has been adjusted and is in line with your retirement goals. A diversified portfolio will produce consistent results. Don’t panic sell when your read something in the newspaper and make sure you are getting sound financial advice from a qualified financial adviser.
- Emergency Fund
During your fifties you are likely to be at the peak of your career, your children are becoming more independent and your ability to save is likely to be higher than before. Your emergency fund should aim to cover a year’s worth of expenses.
- Your health
Your health is one of the most important investments you can make. The cost of preventable diseases like diabetes can be enormous when you factor in the cost of medications, specialist visits and hospitalisation due to complications. Poor health can also force you to retire earlier than planned. Unfortunately, in your fifties the demands on your time from careers, family and even ageing parents can leave you with little time or inclination to exercise and eat well. Remember though, medical expenses increase exponentially as we get older, so make an effort as early as possible and invest in your health.
- Super contributions
By the time you are in your fifties you should be aiming to make extra contributions to your superannuation. ‘Salary sacrifice’ refers to the pre-tax contributions to your superannuation. Paying more money into your super now will mean you pay less tax and will have more income in retirement.
If your self employed, you may consider the value of your business as a substitute for superannuation, but this can be equivalent to putting all your eggs in one basket. Things outside your control could significantly impact on the value of your business, so it’s prudent to diversify and superannuation can offer a tax-effective way of doing so.
- Ageing parents
You need to consider the fact that your parents and parents-in-law may need help to take care of themselves as they get older. This may involve time-off from work to take them to medical appointments or it might require financial assistance. This will also need to be factored into your budget.
Your fifties can be a time of greater risk should you lose your job as it can be much harder to find a new one. Make sure to keep your skills up to date.
- Side hustle
Now can be a good time to turn a hobby or skill into a ‘side hustle’, freelancing or starting a small part-time business that can help pay off debts or contribute to savings. This can also be a source of additional income in retirement.
- Prepare for your retirement lifestyle
Have you thought about where you will live when you retire? What will you do all day? Now is the time to start testing out what you want your retirement lifestyle to look like. Visit the area you are thinking of retiring to. Join some clubs and social groups. This is especially important if you have been focused on your career and most of your socialising has happened within the work context.