The good news is that 40 might be the new 30 in terms of health, and only one third of the way there in terms of life expectancy.
In terms of finances, however, it can usher in a whole new world of responsibility and worry.
For some people, you can sit back and survey the last 20 years and think about the progress you’ve made. You’ve been to university, got the career humming along nicely, have a house and started a family.
And if you haven’t, and if some of those things are important to you, then it’s time to get serious and make some changes.
Forty is an age of reflection, where people assess their lives in all kind of ways and ponder what they’ve done, and judge whether it has been enough.
Compared with those old school friends you just met up with at the 25-year reunion, how are you going?
Strange that some of the smartest kids have been the most unsuccessful adults, and how there are so many success stories among the kids who were nobodies at school.
But while you might look back on the past 20 years, it really is time to prepare even more for the next 20 and beyond.
Have you got enough super, should you start a business, do you need to buy an investment property or get that share portfolio going?
Do you need to start salary sacrificing into super, or get your own fund with your partner? How about upping the mortgage payments and putting that big trip to Europe on hold?
If the career is humming along, is it time to have that stint overseas, both for the benefit of experience and also the ex-pat package? Or is it time to start thinking about a career shift?
As if the future isn’t enough to think about, there is the present to take care of.
If you have children you need to make decisions about education, and often high-school education.
You might like the idea of private education, but the cost is going up all the time. Can you afford that, and if you can, what will you have to sacrifice in doing so? Paying off your house?
Your 40s is also the age when you enter the “sandwich generation” years, between your children and your parents. Sometimes you feel you are parenting and looking after them both, and everything you do is with some other family member in mind.
And in the midst of all this, you are trying to make sure you are living the life you always wanted, in the career of your choice, with everything on the right trajectory.
And all of a sudden you are 49…and wondering how to celebrate your next birthday.
Six Point Check List
- STAY FIT. Especially if you’re working too hard, take time out to look after yourself. You won’t want to pay for it in ill-health later on.
- Not just in super, but maybe it’s time to get some shares for yourself, or start a business on the side.
- CHECK YOUR SUPER. Perhaps you haven’t thought about it in years. Maybe check how it’s tracking and re-set it based on how many years you are from retirement.
- SPEND TIME WITH FAMILY AND FRIENDS. Don’t lose sight of what is important and the reason you are working so hard.
- DON’T COMPARE YOURSELF WITH OTHERS. It’s counterproductive. We chart our own course in life. If you feel you need to do more, do it for yourself, not to catch up to peers
- LOOK FORWARD WITH CONFIDENCE. Feel satisfied with what you’ve achieved and anticipate the future. If you’re not satisfied, there’s still plenty of time.
Super all part of the business
Damian Hand was quite happy renting his business premises from a supplier at lower than market rent, but that all changed when his supplier and landlord decided to retire.
Damian, 46, owns a roof-slating business in Sydney’s west. He bought into the business with two partners in the early 1990s and subsequently bought both of them out, becoming sole owner in 1998.
With between six to 10 employees, depending on the work pipeline, things were ticking along fine, but the situation with the factory space was a catalyst for his reassessing his financial affairs.
“I was quite happy renting the business from the supplier, it was mutually beneficial,” says Damian.
“But when things changed, I realised that I didn’t want to start paying market-value rent and in 10 to 20 years have nothing to show for it.
“So first of all we looked at the business buying a factory, and then I was given some advice that doing it through a self-managed superannuation fund was the way to do it.”
Having decided on an SMSF, Damian and his wife – a police officer, took their savings out of their respective industry funds and created their SMSF, leaving sufficient balances in the industry funds to continue to pay for their life insurance.
Pooling their funds, they had just over $200,000 in the SMSF, but there was a shortfall to make up if they were to buy the factory they wanted for about $530,000.
Instead of taking out a limited-recourse loan through the SMSF, as many people do, they were able to make up the difference through a personal line of credit.
“It got a bit complicated just before all this happened with the home mortgage,” says Damian. “We had been on a five-year interest-only loan with the mortgage on our house.
“But when we went on interest and principal, the payments soared, even though I had $400,000 in an offset account.”
So he paid the $400,000 off the mortgage, and then went to the bank and asked for a personal line of credit “for as much as they would give me”.
“So I ended up getting a line of credit, not knowing if would ever need it,” he says. “So when we needed the extra funds to buy the factory, I used that money to make up the difference.”
Now the factory has been bought through the SMSF, Damian and his wife as the sole trustees are thinking of other investments.
“We do want to diversify a bit, and I think that we could look at some residential property,” he says.
With two children, aged eight and 10, heading into private secondary education soon, the Hand family is about to incur more expenses, but Damian is feeling confident.
“I look around at a lot of other people and we are lucky in that we are not struggling for money,” he says. “More would always be nice, but we have enough for what we want to do, enough for a holiday each year together and everyone is happy and healthy.”
Looking into the future, Damian sees the sale of his business as the next major financial milestone on his way to retirement.
“It is definitely on the agenda,” he says. “I’m 46 now, so I’d like to think I could sell the business before another 20 years is out.”
Your 40s are generally peak earning years and with your 50s around the corner, you should be thinking about the future and planning to set yourself up for when you want to be winding back from the workforce.
The earlier you start building your investments such as super, personal investments (i.e. shares) and property assets, the better outcomes you can expect in the future and the easier it will be to build serious momentum.
Don’t delay planning to get an idea of where you’re headed financially. Doing this sooner will help you make any course corrections that will give you better outcomes in the future.
This decade should be about paying down mortgage debt on your home. You should have a clear exit plan for your mortgage and understand what you need to do so you aren’t running significant debt in later years.
It’s likely your tax bill is increasing into your 40s, so review your position and the opportunities available to reduce tax.
Your investments should be structured in the most tax effective way possible and you should look at strategies such as debt recycling to boost investments, pay down your mortgage, and cut your tax bill at the same time.
You should also think about boosting your super for eventual retirement and consider strategies such as salary sacrifice to grow your super tax-effectively.
You should also review the type of fund you have and how your investments are set up, so your super is working hard for you and not just your super company!
Depending on when you want to retire or wind back from employment, it’s also really important to start building your other assets to allow you to fund your lifestyle between winding back from work and the time you can access your super.