3. Life begins at 40

Hey, along the way you got respectable and responsible. The pressure is easing a bit now, the children are getting older. Maybe it’s time for that trip overseas you’ve been promising yourselves for the past 10 years. It’s nice to be able to spend money renovating the house and not feel guilty. You may be a two-income household again, and seriously thinking about how you want to live in retirement.

Typically, in this passage, the children are now at school, and in many households both partners are working full time again.

The family will have moved or be considering moving to a new home, or carrying out major renovations to the original family home.

In many homes, one or both income earners will go on to a better job, perhaps a management position, and will be encountering all the difficulties of trading off the demands of peak career performance with increasing family commitments.

Often these are the maximum income-earning years when both partners are working full time. Typically, a decade from now, the second income earner will no longer be in the workforce full time.

Now is the time when you and your partner want to ensure you are getting the most out of life, and that you are providing your children with some happy memories to pass on to their children.

You will probably want to spend more than you have been used to on items you previously put in the ‘luxury’ category; things like entertainment and family holidays. Your children’s needs are becoming more expensive too.

Despite being relatively better off than you have ever been, all this requires careful planning and goal setting.

While you’ve lived with a mortgage for a long time, you may find that due to upgrading, your mortgage has increased.

This is the time to make sure you have enough life, income protection and disability insurance, and to top up your existing superannuation and other savings, so that if you die or cannot work, your dependants will be able to receive sufficient income for their needs.

These are the prime years for setting aside long-term savings, which still have time to grow dramatically and cater for your needs in retirement.

For example, $10,000 invested at age 40 could have a value of $54,000 at age 65, whereas the same $10,000 invested at age 50 would be worth only half that much ($27,000) at age 65, assuming an earning rate of 7%.

While hopefully your health is not yet a major concern, you may find that the body is not quite as quick and responsive as it once was. And you may be very pleased now that you started your health insurance cover when you did, back in your 20s.

The numbers say you’re still batting strong, and you’ve got a lot of life yet to live. However, if you haven’t made a will, do it now – it is vital to have ordered financial affairs.

Here is a broad picture of the age group in this passage, 35-50.

The personal checklist for Passage 3 will enable you and your partner to determine how you are progressing and what changes and improvements you may need to make, particularly if you want to retire before age 65.

All you have to do is complete the following questions, tick the category that applies, allocate yourself points as indicated and check your score against the following comments.

A score of 90 or more is excellent – this is a clear indication that your household has a thorough understanding of what is required to have financial security now as well as a financially independent retirement.

A score of 75-90 is good – your answers show what is required for you to be properly prepared as you pass into the next financial passage.

A score less than 75 indicates prompt action is required for you to gain control of your financial affairs. Very likely you currently have the feeling of going around in circles, working harder, getting nowhere.

Summary

Don’t despair if your score is not excellent. You still have time to reach the goal of about 7.5 times your annual income at age 65. However, the longer you leave it, the greater the proportion of your salary that will need to go into savings. The message is clear – act now, while time is on your side and to make it easier on your move through the later passages. If you’re not sure what to do, seek advice from a professional financial planner.

Now go to Back to basics for more information about keeping your finances under control.