I’m nearing 40 and I’m not sure if I’ve invested wisely. How...

I’m nearing 40 and I’m not sure if I’ve invested wisely. How can I tell?

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I’m nearing 40 and I’m not sure if I’ve invested wisely. How can I tell? 

By the time people hit their 40s, three out of four people have saved something towards their retirement. They are hitting their peak earning years and they should be well on their way to reaching their long term savings goals.

Except that life gets in the way. A dilemma faced by those in their 40s is that they typically need to save for university tuition for their children, whilst also saving towards their retirement and perhaps even building a house as well.

Your 40s may seem like the ideal time to switch into overdrive but many 40 somethings are instead puttering along in first gear. They save what they can, do their best and figure that they’ll sort out their finances later, but not having a financial plan is actually the same as having a really bad plan.

Every financial plan should be specific to the individual’s needs and lifestyle requirements. You should look at your net income and set priorities for paying off debt and saving for your different needs.

The following areas should be considered:

 

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  1. Have an emergency fund, such as a money market fund.
  2. Start saving towards your children’s educational expenses as soon as you can.
  3. Pay off your debt with your excess monthly income. As a guideline use 1/3rd to settle debt and 2/3rds towards your retirement.
  4. Maximise your company’s retirement fund contribution up to the allowable limit.
  5. Consider investing into a retirement annuity to maximise on reducing your taxable income.
  6. Do an insurance needs analysis for your family. For a healthy person in their 40s the cost of your life cover is not exorbitant.
  7. Check out your disability cover – a lot of companies will only pay up to 75% of your gross monthly income.
  8. Consider your household and car insurance needs.

As a general rule of thumb if you started saving in your 20s you can get away with saving approximately 12% of your take home pay. If you are in your 40s the general rule of thumb is that you need to increase your savings rate to about 20% of your net income.

It seems that too few people have taken the necessary steps to prepare themselves to be financially secure in retirement but it is important to realise that it is never too late to start.

Wendy Foley
Wendy Foley CFP® is a certified financial planner at Consolidated Financial Planning and a member of the Financial Planning Institute. Wendy has 25 years experience in the Financial Services industry and she has acquired invaluable experience in financial planning from companies such as Investec and Alexander Forbes. For more information visit www.consolidated.co.za
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