Saving for Retirement in Your 40s

When you are young, you’re unlikely to give retirement a second thought. Why would you? It seems so far away from your current situation. But then, around the age of “the big 40” retirement starts to feel awfully close. The good news is that you still have some 20 years until you reach that milestone. So there’s still plenty of time to set yourself up financially in order to enjoy your golden years. 

For most people, their 40s mean their earning capacity is greater than it has ever been. At the same time, this decade can also bring more expenses than those before it. Some you might choose, like private school fees or larger mortgage repayments for a dream home, and some that might come as a shock such as divorce. As a result, it can be tempting to put saving for retirement on the backburner. Instead, these major life events should cause you to reassess your income and assets, and to consider how you can optimise your savings in preparation for retirement.

The choices you make now can seriously impact your financial future. Read on to discover how to save for your retirement in your 40s. It may be easier than you think!

Calculate how much you will need for retirement

The first step is to get a sense of how much money you will need to retire. To get an idea, you can check the quarterly guide published by The Association of Superannuation Funds of Australia (ASFA). The ASFA retirement standard estimates the superannuation balance required to achieve a comfortable and modest lifestyle in retirement.

If you are a single person in your mid-60s and want to retire in Q2 of 2022, the ASFA estimates you are likely to spend around $46,500 per annum in order to enjoy a comfortable lifestyle. If you are a couple, that number increases to about $65,500 annually.

Individuals and couples who are okay with a more modest lifestyle can do so with an annual budget of around $29,500 or $42,500 respectively. This amount is slightly better than living on social security or a pension alone.

Live within or below your means

No one likes the thought of sticking to a budget, but planning ahead will mean you’re well placed to retire comfortably. Because your 40s are typically your peak earning years, it’s the perfect time to consider putting some of this money toward retirement. 

Take control of your spending by thinking twice about those big-ticket items. One useful strategy is to take a day or two to consider whether or not you really need that big ticket item. Unnecessary impromptu purchases can quickly whittle away savings. If you still want the item by the end of the week, and the purchase fits in your budget, then go ahead and take the plunge. You might be surprised by how often you decide not to make that purchase, putting the money towards your retirement instead.

Planning for your children’s future

Every parent wants the best for their children, at every stage of their life. Be it a private education, extra curricular activities or supporting major milestones like contributing to their wedding or first home deposit. But these expenses need not come out of your retirement budget. Consider setting up an account, separate from your retirement fund, that’s just for these expenses.

When it comes to education, it might also be worth investigating scholarships or financial aid to help relieve the burden.

If you decide to limit your expenses in the short term to meet your long term goals, like building a nest egg, don’t be afraid to share the reasons why with your children. Children often understand more than we think.

Realistic financial goals

You will need to save money for your future but how much will depend on how you intend to live in retirement. Like any other goal in your life, retirement goals should be realistic. Understanding how to save for retirement and setting short-term goals will help to achieve long-term objectives. You might also consider speaking with a financial adviser about putting together a portfolio that is right for you, which could include real estate, stocks, and other investment options.

Reduce your debt

Ideally, you want to enter retirement debt free. Entering retirement with debt means you could deplete your retirement income. If possible, try to pay off your mortgage and other bills early to reduce or eliminate some of your debt before you retire.

 Consider refinancing your mortgage and personal loans to get a lower interest rate and think about making additional repayments each month. Paying off credit card balances at the end of the month helps to wipe out interest fees. As a rule, do not borrow money if you can not pay it back. 

Re-evaluate your insurance

Most people are unaware of this, but having the right insurance will provide peace of mind if disaster strikes or something traumatic happens. You might consider income protection which allows you to continue paying bills without depleting your retirement savings. Of course, you would need to look at the details of each policy to decide what’s right for your individual circumstances.

Prepare for end of life

Paying for your own cremation might feel a little strange, but locking in the price now allows you to avoid inflation and remove the burden from your family. Plus, paying for it whilst you are still earning a wage means you won’t have to eat into your retirement savings if you were to choose to do it later.

Wrap up

It’s never too early to start saving for your retirement, but it’s most common to only really start thinking about it in their 40s. Understanding how much money you will need in retirement, setting realistic financial goals, budgeting well and living within your means are all good strategies to help you accumulate enough wealth to live comfortably once you stop working in paid employment. If you’d like to get organised by prepaying your cremation, the team at Willed can help. Please go to willed.com.au or call our team of dedicated funeral planners on 1300 945 533 for a free fixed-fee quote.