Retirement Planning By The Decade- Your 40s

Now you are in your 40s, which could possibly be the most challenging decade of your life. It feels like you are at a crossroad and everything is coming at you. You may find yourself having to care for and perhaps financially supporting your aging parents, while at the same time also financially supporting your children who are now in university and a disabled spouse. Even with the increased financial burden, it is even more important that during this decade, you maintain the path being travelled as you continue on the journey of retirement planning. If you did not commence your retirement planning in the previous decades then you certainly need to start taking care of your financial health right now.

Bear in mind that retirement planning in your 40s will perhaps be the single most important step you will take to prepare yourself for your retirement years. If you are just beginning to start the planning phase, you will have some serious catching up to do. On the basis of better late than never, how do you get this done? Let us look at some of the items that should be included in your action plan:

You have no time to waste and cannot afford mistakes. Begin by educating yourself – ensure your knowledge is up to speed on what you need to do to ensure a successful retirement. Contact professional advisers such as financial advisors and retirement planning consultants to help you create a plan and implement the retirement strategy best suited to your pre and post retirement lifestyle.

Next, if you haven’t done so already, look into beginning to save for retirement with a taxdeductible and tax-deferred approved retirement savings plans, such as your employersponsored superannuation fund or an individual retirement scheme. If you are currently saving in one of these funds or schemes consider increasing the amount, if you have not done so already, to the maximum allowed under the Income Tax Act.

At this stage of your life retirement savings must be your top priority. More than likely you are at the peak of your career, earning more than you did in your 20s and 30s. Put that salary increase to good use and invest wisely in assets that will increase the value of your investment portfolio and improve your income earning power at retirement. Begin to focus on lowering your living costs. The lower your living cost becomes the more money you can set aside for investment and the faster your retirement savings will grow. One way of doing this is paying down the mortgage on your home and reducing your monthly payments.

A similar action plan should be taken with high interest rate credit card debts. Be careful with your investments, stay close to your investment adviser and don’t be overly aggressive in your investment action. Determine your risk profile and use it to manage your investment portfolio. Remember you cannot afford to make an error at this time as you will not have sufficient time to recover. Review your savings portfolio performance at least twice per year to ensure you are on track and taking advantage of all opportunities. Actively manage your portfolio which will include your long term retirement savings, your retirement investment savings, your short term fund, your superannuation fund or retirement scheme savings, as well as, your emergency funds. Is there anything you could have done differently? Is everything on track?

Do you need to make any changes? There is still time in your 40s to make changes or rearrange your savings strategy in areas that have not worked out as expected or even those whose performance exceeded your expectation.

Providing for your children’s university expenses and at the same time you are just beginning to save for retirement can prove to be very challenging, but in the final analysis don’t allow yourself to make the choice of foregoing your retirement savings to provide this good start in life for your children. Bear in mind that financing a university education can be done by using grants, scholarship and even loans, but none of these will be available to fund your retirement. Act wisely, start your research on what is available to fund a university education and begin to plan in advance so when the moment arrives you will not be dipping into your retirement savings.

Begin to look at how to protect your savings by ensuring that you have in place sufficient life and disability insurance to cover unforeseen events such as longdisability which can lead to early retirement. In the case of a couple (married or cohabiting) the loss of a spouse could reduce income levels and impact on retirement savings and guaranteed lifetime income. Additionally, the occurrence of natural disaster could result in the loss of one of your major assets such as your home.

Always remember you are trying to create wealth in your 40s and your efforts must be focused on accumulating as much as possible, closely mirroring what you would have accumulated, had you started in the previous decades. For those of us who had began thinking and planning for retirement in our 20s and 30s, now that you are in your 40s your game plan for this decade will be to maximize your opportunities, continuing to refine your strategies and begin to implement action plans that will reap benefits as you approach the next decade.

Your checklist will include the following:

Continue saving: By now you earnings have increased, instead of improving your standard of living to match your increased income, place that extra fund in savings, as if it never existed.

Continue to improve your emergency fund aiming to have a savings balance which will cover one year’s worth of living expenses. In addition you now need to start creating your medical fund which will take care of medical expenses not covered by your current health insurance plan, whether from your company or the state.

Continue to keep your debts under control: The idea is to completely eliminate debt, so create and begin to implement a plan that will allow this to happen. The best debts are those that allow you to earn an income such as the purchase of an investment property which can be rented or a loan which is placed on investment earning more than the loan interest rate.

Put your investments in the right places: Even as you shift into high gear with your investment portfolio bear in mind that you now need to actively manage your investment portfolio. You now have a better idea of your lifestyle at retirement and you need to determine the funding required for supporting this lifestyle, as well as any gap in your investment portfolio. Your emphasis now should be shifting from growth to income preservation options. It is also important that you continue to seek professional advice to ensure you are maximizing your opportunities.

Saving for college: You will want to assist your children with their university education, but not at the expense of your retirement savings. If you have not done so already begin to set aside funds specifically designated as college fund. Do this as tax efficiently as possible. Work with your child to identify alternate source of funding their education and remember at all times, your retirement fund is not available for use on any other expense but your retirement.

Preparing to assist elderly parents:

Don’t wait until your elderly parents are in need of your support financially or otherwise before you begin to create a plan for them. Create that plan now and determine how it will be funded. Do they have savings of their own? Do you need to supplement it? Do they have sufficient insurance coverage whether life or health coverage? Do they have an estate plan? What will your responsibility be? Ensure that you do not allow this to negatively impact your retirement plan.

Remember don’t let a better job derail your retirement plan: This is a decade in which you can anticipate changes, whether from within yourself or even your company.

As your reach this cross road you may begin to want to make a change in jobs or even careers as you look toward the future. Create a plan of action to ensure that you do not derail your retirement plan and you take advantage of opportunities that will arise to safeguard your retirement plan. Opting to take out your funds from your company superannuation fund should be a last resort and only if you are sure that you can manage this more effectively to generate the required level of income to support your retirement lifestyle. If you are a member of an approved superannuation fund and terminating employment either for a better job or redundancy ensure that your departure is within the time period required by your superannuation fund to be vested i.e. eligible to receive the funds contributed by the employer and full benefits from the fund.

Once you pass a vesting milestone while you are with your current employer you have more or less secured a guaranteed source of income available at retirement. To ensure that you do have this benefit, you should check the vesting conditions in the Rules of the plan. Ensure that you are safeguarding your financial future: By now a lot of changes have occurred in your life. Have you reviewed your financial safeguards?

Do they adequately

cover the changes that have occurred in your life? You may need to increase your insurance coverage for items such as life, health and disability insurance coverage, as well as, insurance coverage for your assets which can be affected by unforeseen events.

Start Estate Planning: By now you would have acquired most of your assets, and hence it is time to begin thinking about your estate and how you will transfer them to your beneficiaries. Aprofessional such an attorney can be very helpful in this process. An attorney will be able to advise you on the various tools available to carry out this activity, such as trusts and wills.

Reinvest in yourself:

Retirement as we know it as changed. What are you plans to deal with these changes? How about reinvesting in you? It is possible that you could be on your third or fourth jobs and possibly looking into a new career all together. Maybe you just want to improve on your skills and job knowledge. Investing in yourself doesn’t always means money, it could be as simple as joining a charitable group or becoming a mentor to develop a broader view on life and demonstrate acquire skills and interest that round out your profile. Whether it is a financial investment or not, this decade would be a good time to begin to invest in skills, knowledge and opportunities that could be of benefit to you in the future.

Refine your retirement plan: Revisit your retirement goals and the plan you created. Are they the same as in your 30s? Do you need to revisit your planned retirement age, determine whether you will retire at an early, normal or late age? At this point of your career, you will have an excellent feel for when you would like to retire, how much you will need when you and where your current career is likely to take you. Base on this you should be able to refine your retirement plan to more accurately reflect your planned lifestyle. Review your investment assets and your liabilities; is there a gap between what you require to fund your retirement lifestyle and what you are likely to earn at that stage of your life? Continue to seek Professional Advice: At every stage of your life continue to maintain a close relationship with your professional advisers. More than ever you need to have a great team of professional to support you as you continue to refine and monitor your overall retirement plan. Your Financial Advisor, Legal Advisor and Retirement Consultant, amongst others, will continue to have a role to play in ensuring your remain on track to achieving a successful retirement Continue to stay on track. The process continues and you need to remain on track to yield the desired results. With the knowledge you have gain over the last two decades, as you go through your 40s it is easy to be derailed as you grappled with homeownership, children’s education and the care of aging parents, even as you seek to pay down your debt. You must remain focus on the long term goal as you now have less time to recover from missteps.

Continue to manage your finances wisely, stick to your budget, periodically review your retirement goals and ensure they are still applicable in light of the changes that may have occurred in your life; adjusting your saving and investment plans as needed, increasing your retirement savings as your income increase and updating your insurance coverage as required to ensure financial stability at critical times, and begin your estate planning.

As you get ready to face the challenges of this decade, keep in mine that it is not too late to get started on your retirement plan or to begin to make changes on your plan if you believe it no longer meets your goals. You still have important decisions to make and plans to fulfill before you retire. Even so you now have a greater sense of who you are and what you want to achieve from life. Use that knowledge to make the most of the years ahead, for yourself and your family, and create your dream retirement