Time flies: Financial planning in your 50s
In preparing for retirement, time is against those in their fifties. Strangely enough, though, they could learn a thing or two from 20-year-olds.
Suddenly you’re in your 50s and time seems to be moving faster than ever. On the upside, your mortgage may be paid off, your children should have graduated and life is, hopefully, a little calmer. But retirement is in sight, and your nest egg may not be as golden as it should be.
Don’t fret…it’s never too late to invest, and the answer may lie in thinking like a 20-year-old! Your 50s is the time to budget, protect and invest…while still living life to the full.
Stick to the budget
20-year-olds are ruthless in their budgeting. They have set priorities which usually include entertainment, travel and education. As a 50-year-old, you’re able to budget with as much vigour, but with different priorities. Entertain modestly, travel absolutely, and embrace the pursuit of knowledge…And, most significantly, increase your retirement fund contributions if you’ve slipped behind.
20-somethings don’t spend on large homes. If you’re still saddled with a mortgage in your 50s, it may be a good idea to downsize before you reach retirement. This would allow you to redirect your mortgage payments into contributions to either a retirement annuity or a portfolio of unit trusts. And it will also mean significant savings on home maintenance – both in terms of cost and effort.
20-years old don’t usually budget for their children. This may seem a little harsh if you’re in your 50s and are a parent, but unless you’re able to (and want to) transfer family wealth to your children during your lifetime, it’s best to allow them to be independent and to take responsibility for their own personal financial plans.
Protect your future
20-somethings protect their own futures vigilantly. In order to secure a sound financial future, they learn, embrace technology, take career risks and work overseas. As a 50-year-old, you should think about doing the same – although the career risks don’t necessarily have to be overseas. You could have up to 15 years left as a formal member of the work force…if you’re not earning what you need to, now is the time to do something about it. In the US, a significant 25% of all new businesses are started by people in the 55 – 64 age bracket, proving once and for all that it’s never too late to capitalise on your hard-earned wisdom and skill set.
20-year-olds are motivated to protect their savings in order to achieve big dreams. If they’re saving for a house deposit, they don’t dip into the fund. Similarly, as a 50-year-old, you need to protect the wealth you’ve earned to date. If you change jobs and a pension fund withdrawal becomes available to you, don’t be tempted to use part of it. You’ll be better off transferring the whole amount into a preservation fund or retirement annuity.
20-year-olds look after their bodies by going to the gym, swimming in the sea, and hiking in the mountains. As a 50-year old you should be doing the same – although maybe with a little less vigour. You also need to review your medical aid cover and ensure that you’re on the right plan. Hospital cover may not be enough at this stage of life.
Invest…a little differently
Investing is where people in their 20s and those in their 50s are likely to diverge. While 20-year-olds will likely be investing in life experiences, new businesses, deposits for new homes, and perhaps in a few unit trusts, they’re able to take risks as time is on their side. In your 50s, however, you’re usually investing for your retirement – and neither time nor risk is on your side.
Risk and asset allocation go hand in hand. The old rule of thumb used to be that you should subtract your age from 100 and use the result to determine what percentage of your portfolio should be held in equity. So, a 20-year-old should keep 80% of his or her portfolio in equity while a 50-something should hold 50% in equities and the balance in lower-risk asset classes including cash and bonds.
Now that we’re living longer, however, professional financial advisers today advise subtracting your age from 120. The logic being that if you have to make your money last longer, you'll need the extra growth that equity can provide.
Age: A state of mind, or reality?
The simple truth is that age is both a state of mind and an incontrovertible reality. Every 50-something wants to feel like a 20-year-old, and you still can if you’re healthy, positive and motivated. But the one precious commodity that’s in short supply for 50-year-olds is time. The clock is ticking, and you can’t afford mistakes, so speak to your financial adviser before making any dramatic changes to your investment strategy. Above all, if you realise you aren’t saving enough to reach your retirement target, don’t panic. Examine your options together with your adviser and make a firm plan and commitment to get there.