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How To Save For Your Retirement In Your 40s

Updated: Feb 11, 2023

save for your retirement in 40s

Once upon a time, retirement was something that happened well into the future. However, now you’re in your 40s, the reality is that you’re halfway there. Possibly even further along if you plan to down tools a little sooner than the official 66 years and six months. Whether you see that as a positive or a negative is up to you. However, one thing is certain - you can’t rely on the government pension alone if you want the next chapter of life to be a comfortable one.

That’s where the ActOn Wealth team comes in. If you’re looking for a financial advisor in Melbourne who knows how to make the most of your wealth-building capacity between now and retirement, you’re where you need to be.

This is how your finances should look in your 40s

The truth is there’s no right or wrong way your finances should look at the moment. However, there is a right way forward to maximise your wealth, and we’re here to plan that with you. There’s no judgement here. If you’re feeling uncomfortable about where you’re at financially, don’t. Set up a meeting with an expert financial planner in Melbourne today - you’ll see how easy it can be. Meantime, here are some great tips to get you started.

Understand your risk profile

In your 20s, everything’s ahead of you. Typically speaking, you’ve not amassed much wealth, and your assets are probably few and far between. Many can afford to take risks. Again broadly speaking, that pendulum has started to shift by your 40s. Possibly you have a family and dependents, a mortgage, and you’re roughly halfway through your income-earning years (although statistically speaking, you’re now in one of two highest income-earning decades). In short, there’s more at stake now. Of course, your very nature could be predisposed to risk. And that’s fine, as long as you are fully aware of the consequences. This is a very important step we take in the first meeting with any new client - understanding their risk profile. That sets the scene for all subsequent decisions and the risk advice that comes with them. So as a first step, we strongly recommend you objectively define where you sit on the radar (and we’ve got the tools to do that!). Risk protection insurance could well be something you should consider, but we can find out together.

Become a budget planner

How much to save for your retirement in your 40s? Well, it all depends on your lifestyle goals now and into the future. Some would recommend putting away 12-15% of your salary. We don’t take a broad-brush approach - we find out more about you and your intentions before talking figures. But we certainly recommend you save a portion of your salary.

Budgeting is not the silver bullet to wealth creation, but gee whiz, it would have to be close! It really does provide the foundations for every subsequent action you can or cannot afford to take when creating wealth. If you want to know how to save money in your 40s, first, let’s figure out how much you’re currently spending. This can be a particularly expensive decade - mortgage, kids’ education and health, investments, etc. Putting yourself on a weekly budget planner can be a real eye-opener to your cashflow. You might find our handy online budget calculator helpful. It breaks things down simply and gives you a clear perspective on how/where money is coming in and going out. And if you don’t like the figures you see at the end, don’t stress! That is precisely why we are here to help. This is not about sacrifice; it’s about allocating the right amounts to the right areas.

Minimise your tax

You’re around the peak of your earning capacity, which, of course, means you’re around the peak of the amount of tax you’re paying! Reducing your tax can be much easier than earning money through investing (although more on that below). As such, it’s important to ensure you explore all areas, whether that be through gearing to invest, salary sacrifice to super, income protection premiums which are tax deductible if paid personally, and more. We know all the avenues and will gladly help you walk down them!

Your mortgage could work better for you. We’re sure.

Why the confidence? Because almost every client we see can be in a better mortgage plan. Closely examining your mortgage can be one of the lowest-hanging fruits in your wealth-building strategy. There’s invariably a huge amount of money involved, and savings can almost always be made - it just takes expertise and time to look for the cracks and find them. It also requires a thorough knowledge of the market, knowing what lending rates are out there and what works best for you. We work day in, day out with this information, so it’s all to hand and up-to-date.

Very importantly - the lowest rate might not be the winning formula for your circumstances. Perhaps re-structuring your mortgage and creating tax offsets might be far more valuable to you. We’ve achieved this many times for clients, and the results can be astounding. All our financial advisers are also fully-qualified mortgage brokers (which makes us a little unique!), so with ActOn Wealth, you’ll get a holistic picture.

On the matter of mortgage, now is a financially good time to start asking yourself if this is the forever home. If it’s not, taking advantage of government incentives and downsizing could start to be built into your strategy.

Audit your insurance

Whether you have income protection insurance, private health insurance, trauma insurance … Whatever your type of cover, go through the paperwork. Better yet, let the best financial advisors handle it on your behalf. As part of our insurance advice process, we scrutinise clients’ existing cover in forensic detail to identify where savings can be made. A recent client benefited significantly from this level of attention when we discovered her private health insurance, set up several years prior, ticked over each year based on her being identified as a smoker. Fast-forward to present-day, and this meant a huge portion of her salary was going towards private cover. What’s wrong with that? Well - she was no longer a smoker. She hadn’t been for years. It’s small wins like this that can reap major rewards.

Consider voluntary superannuation payments

As part of our superannuation and retirement planning advice, we typically recommend clients make voluntary super contributions when they can. This is a smart move savings-wise, but potentially also for offsetting tax.

Consider investing

We talked about this being a big decade for expenses. However, we also acknowledged that it can be a strong decade for making money. If you have cashflow surplus, then you might want to consider investing a portion of it rather than channelling it all into super. Indeed, this idea is especially relevant if you don’t want your retirement dictated by when you can access your super. A healthy wealth-building strategy involves diversification, and that’s what we’re here for by assisting you to establish or expand your investment strategy.

Don’t forget about estate planning

We know it’s not something any of us want to think about, but our team knows how to deftly work with this elephant in the room. The fact of the matter is, if you’re going to the trouble of generating wealth, you want to know it will be dispersed as per your wishes in the unfortunate event of your passing. Don’t leave it to just sort itself out. Rest assured, if you do, it’s very unlikely your loved ones will be cared for quite the way you intended. Take control now with the right estate plan.

Contact us about finances in your 40s

Don’t put pressure on yourself to suddenly start saving so there’s no fun in life. Don’t stress that peers or friends seem several financial steps closer to retirement than you do. The fact you’re reading this shows you’re in the right mindset to be making smart decisions to maximise your wealth. We’re here to show you how smart decisions can also be simple and not rupture life as you know it! Touch base with the best financial adviser in Victoria! Give our team a call, and let’s organise a no-obligation, no-cost catch-up.

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