Reaching your 50s has become cool — just look at Elle McPherson, Brad Pitt, Michelle Obama and George Clooney.
At this age, children say things like “Mum/Dad, you are right”, and “thanks for your help”, while our parents are still fighting fit and enjoying their retirement.
Having moved on from our 40s, here are the financial mistakes to look out for in your 50s:
1. No retirement plan
There are 3 standard reasons for not having a retirement plan: it’s too hard; I don’t have the time; or I haven’t made the effort.
I can’t stress this enough — For 99% not having a retirement plan in your 50s means you will not be able to afford your dream retirement.
It is never too late to start planning for your retirement but, if you’re not already planning for your retirement in your 50s then you’re making it hard for yourself.
Your retirement plan will help achieve the retirement lifestyle you deserve. For those who plan well, this can even include early retirement.
2. Not turbo-charging your retirement savings
In our 50s our pay packets are higher than ever before, our kids are leaving school and eventually leaving home, and our mortgage is paid off or well under control.
It can be tempting to spend your new-found surplus cashflow on travel, upgrading the home or upgrading the cars. A little splurging to celebrate is OK but don’t neglect prioritising your dream retirement. That is where the fun really starts.
Your improved cashflow is a great chance to turbocharge super and there are strategic windows where you can contribute to super up to $1.15 million for a couple.
3. Incorrectly structuring your finances
Too often I meet professional clients with all their assets in one person’s name with little or no consideration given to reducing tax or asset protection, thereby leaving a big tip for the government and their family exposed.
By strategically structuring your finances, you can both better protect your family’s wealth and ensure you don’t pay more tax than you have to. Typical vehicles for structuring that my clients utilise include companies, trusts and Self Managed Super Funds (SMSF).
4. Not creating an income stream
If you’re planning to retire at 65, you need to create an income stream that funds the next 20 to 30 years of your life with no pay cheque coming in.
The retirement nest egg that you create in your 50s could be the difference between a modest lifestyle in retirement and your dream lifestyle.
Your diversified investments should be structured to provide an ongoing monthly income (from rent, dividends, and interest) to cover your living expenses in retirement.
5. No exit strategy
Many of my successful clients are business owners. They have dedicated their lives to creating and growing a company with a strong vision of the great service and products they proudly provide. The time and effort they have devoted in their business has become a significant portion of who and what they are.
Unfortunately, sometimes they don’t dedicate enough time well in advance to best position themselves for their eventual exit. This can result in additional tax and a sub-optimal result for their personal finances.
If you plan to sell your business via a trade sale, private equity or an ASX listing, a structured plan implemented well in advance can both reduce your tax liabilities and maximise the value you realise for all your hard work and effort.
6. Too much (or too little) insurance
There is an army of commission driven life insurance sales people out there willing and ready to sell you as much life insurance, income protection insurance, trauma insurance, and Total and Permanent Disability (TPD) insurance as possible.
However, if your kids are no longer financially dependent on you and your debts are under control, your need for insurance may now be lower. If you still have dependents and debt then the need for insurance will likely remain. Have the Goldilocks level of insurance that’s just right for your situation but avoid commission driven sales spiels.
Our 50s are a great time in our life if we avoid these financial mistakes. We’re now confident, adventurous and fearless. We know what we want from our relationships, our career, our finances, and our passions and we aren’t afraid to wade right in and demand it.
Claire Mackay is independent financial planner, accountant, lawyer and SMSF expert at the family-run Quantum Financial in Sydney.
NOW READ: The 6 biggest financial mistakes people make in their 20s