This is the latest in our series of articles that consider the financial challenges for clients at a specific stage in life. This time we’re looking at people who are in their 50’s. This is a really important stage in your financial life as it is often the time in life of maximum income and the greatest opportunity to really build your wealth.
Here are some thoughts on how you might approach your finances differently in the second half-century of your life.
Accept advice and help
We very definitely put this one at the top of the list, as there are some crucial strategies to implement correctly at this stage in your life. If you should make major mistakes in relation to your retirement finding during your 50’s, you probably won’t have enough time on your side to fully recover from them. There are also significant tax saving opportunities available to you in retirement funding, investment structures and exiting your business. Each of these needs to be considered carefully. This is also a critical time to start thinking about how you will effectively decumulate assets after you stop working and also to plan the transfer of your wealth to the next generation in a tax efficient way.
Each of these (and more) are important strategies to get right and each of them require careful advanced planning. We modestly suggest that you accept our help in helping you to maximise the financial opportunities open to you. At the end of the day, research has shown us time and time again that clients who accept advice and help from experts achieve better outcomes.
Have crystal clear goals
Now is not the time to muddle along and hope for the best. We encourage you to take a step back from your bank and investment statements and really look into the future. What does your desired life look like for the next 20/30/40 years? When you have this picture clear in your head, then it’s our job to show you what you need to do to achieve it. We’ll create the plan and then work with you every year to ensure you achieve your dreams. Without the clarity of your dreams and objectives, are you just drifting along to see where life takes you?
Don’t touch bonuses
Now we start getting very practical. Hopefully at this stage of life your monthly income exceeds your expenditure. You probably have the back broken of your mortgage or even your mortgage may be behind you. Bonuses that you get in work or from inheritances etc. are very welcome, but in truth probably not necessary to fund your life today. So don’t use them for today, give yourself more options in the future. If invested wisely, they might help you to retire earlier, buy a place in the sun or (not quite as exciting) pay for long-term care later in life. Do you really need that 3rd holiday this year or the very top of the range car?
Maximise your pension contributions
Once you hit your 50’s, you can get tax relief on your own pension contributions at your marginal rate on 30% of your net relevant earnings. Once you hit 55, this rate increases to 35%. While there is a maximum annual amount of earnings of €115,000 for which tax relief will be given, if you have spare cash there are great tax saving opportunities here. Of course if you have your own business, there are opportunities for even greater tax savings through making pension contributions. As you generally cannot claim relief for years gone by and as the radio ad says, “Once they’re gone, they’re gone”, don’t let these opportunities slip through your fingers.
Pay attention to your investments
As mentioned earlier in this piece, your 50’s are a time for continued wealth accumulation. It’s really important that you work very closely with your adviser to ensure that your investments reflect your timeframes and your appetite for risk. As mentioned earlier, this also should be done with one eye on your likely investment strategy after you stop working. Are you investing today with an end date of your retirement date in mind, or are you likely to continue investing after retirement and instead have one eye on the future decumulation of your assets? Your investment time horizon may not be 10-15 years, instead it might be 30-40 years still...
Keep the kids moving!
Yes we all want to help our kids and we’re not advocating that you throw your kids out on to the streets once they are through college... But at the same time, be careful about the level of support that you give to them. Support them fully within your means, but don’t let their financial needs derail your own goals. Otherwise financial problems will just stack up for you in the future, and these may also come back to haunt your kids.
Your 50’s are a time of great financial opportunity. Please give us a call and we will help you to make the most of these opportunities for you and your future.