Four tips for dealing with volatility in your investments
When it comes to saving for retirement, your 40s are a time for consolidation. Many 40-somethings will have a family well under way, they’ll be well established in their career and likely near the peak of their earning potential, plus they may be chugging along nicely paying off the mortgage. So it’s a good time to really crack on to things such as paying down debt and ensuring you have a financial plan in place as retirement draws ever closer. Here are five tips to help people in their 40s stay on track for retirement.
1. Pay off high interest debt
This applies to savers of all ages, but for people in their 40s, the time is ripe to really knock high interest debts on the head. Income levels will most likely be better than ever and for many people it’ll be a case of ensuring you funnel that money to the right places. Sure, it’s easy to spend your new-found income on luxury items, but you’ll be much better off getting debt (other than mortgages) out of the way first. It’ll save money in the long term, too.
Tip: Make a budget. If your income is higher than it’s ever been before, but you still seem to be short on cash, it’s time to bite the bullet and create a budget. You may be surprised at just how much fat you’re able to trim from your monthly outgoings, just by going through the process of budgeting. Check out our guide to creating a budget.
2. Get smart with investing
If you’re in a position to be able to think about investing money, now is a great time to do it. 40 year-olds have plenty of time left to make some long term investments really work for them. If you’ve always kept your spare money (if any!) in a savings account, it might be worth considering other methods of growing those savings. While savings accounts are a great way to save for a particular goal (perhaps a new car or bike, for example), something like a term deposit could prove more lucrative if that money isn’t going to be needed any time soon.
Tip: No idea what a term deposit is? Have a read of our in depth guide to see if it’s the right option for you.
3. Sort out the home loan
If you’ve hit 40 and have let the home loan fly on autopilot to this point, it’s time to take control. Instead of letting it roll over every few years on the same old routine, talk to your bank about different ways of structuring your loan. A few small changes and a more proactive approach could help shave years off the loan term and save thousands along the way.
Tip: Most banks offer a range of home loan products, all designed with different styles of use in mind. These range from tailored home loans to offset loans to floating loans and more. There might be one better suited to your current loan. Take a look at our guide to becoming home loan free faster, then give your bank a call to see how it might work for you.
4. Don’t forget the kids!
If you’ve got kids, you probably want to help them out financially when the time comes for them to head to university. For 40 year-olds, the time has come to do something about it -- otherwise you’ll be dipping into your own retirement funds if you don’t have a plan in place. Consider the costs involved for an average university education and work out how much you’ll need to set aside each month. You might be surprised at how little it is (that’s assuming you still have a few good years left before they start uni), and this advance planning will help keep your retirement savings on track.
Tip: According to Universities New Zealand, fees for undergraduate arts, law and business degrees are around $6000-$6800 per year. If your child has 10 years before uni, that means you could set aside $78 each fortnight and have their tuition fees covered by the time they head off (less if you take earnings on interest into account). Considerably less of a hit than forking out for those fees all at once later.
5. Give your savings a health check
If you’ve been diligently saving away for retirement, your 40s are the best time to take a look at how it’s all tracking. You’ll probably have a better idea of how much money you’ll realistically need to live off in retirement and it’s much easier to make changes now, than waiting until you’re in your 50s. Sit down, do your sums and ensure the amount you’re putting away is going to be enough. Then make sure your savings are working to their full earning potential. Double check your KiwiSaver funds, reinvest any term deposits and do an inventory of assets.
Tip: To help you figure out how much you’ll need in your retirement years, try the various calculators on the Sorted website.