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The lean years: Navigating your finances in your 40s

16 things you need to consider in this decade.

Having developed your occupational expertise and being on an upward earnings trajectory, your forties can be a highly successful time in your career. At the same time, however, it is likely that your personal life has become more complex and demanding especially when it involves parenting teenage children, running a home, worrying about ageing parents and trying to find work-life balance.

As opposed to being cash-flush years, the forties can be particularly lean ones in terms of cash flow as you find yourself financially torn between paying off your home loan, saving for retirement, investing for your children’s education, and possibly providing your parents with financial assistance.

While this decade is critical in terms of investing for your future, it is often difficult to make retirement funding a priority. With massive demands on your professional time coupled with your desire to be a hands-on, fully involved parent, it is understandable to find yourself cash-strapped and time-poor in this decade. Navigating your finances in your forties can be complicated, and here are some points to consider:

Emergency funding

With children, property, pets, vehicles, holiday houses and more ‘stuff’ in general, you will likely need access to more emergency funding. If you still have a home loan, your access bond is a great place to keep your emergency funding. Being responsible for more people and more things, more can go wrong, and you must have access to cash when you need it. Large vet bills, broken appliances, tyre replacements, sports tours, emergency travel and hospital co-payments can and do happen – often simultaneously – and adequate emergency funding will prevent you from incurring debt to fund these costs.

Looking after aged parents

Your parents may be close to their retirement or even in retirement, and if you don’t have a good idea of what their retirement funding position is, now is a good time to find out. If they are underfunded for their retirement, you and your siblings may be required to assist them financially in the future. The thought of part-financing your parents’ retirement when you are still trying to save for your own can be overwhelming. However, knowledge is power – so use this decade to obtain certainty about your parents’ financial situation so that you can put plans in place if need be.

Divorce

According to Stats SA, the median age for divorce among men is age 44 and among women is age 40, with 44.6% of marriages not lasting ten years. With the high divorce rates in our country, there is a real chance of having to deal with a divorce in your forties – something which can set you back financially. Before entering into divorce proceedings, be sure to seek independent legal and financial advice so that you fully understand your rights and financial position at the outset. Also, don’t rush into a divorce settlement in an attempt to flee a toxic situation as this will only compromise you financially. If possible, work towards a mediated divorce settlement that prioritises an amicable parting of ways.

Blended families

With the high rate of divorce comes the likelihood of finding yourself part of a blended family which can make life complicated and expensive. Ex-spouses, stepchildren, maintenance obligations to children from a previous marriage, or being financially responsible for more than one home can be financially taxing. Careful budgeting and planning are essential to keep track of your finances and to manage your outflows. 

Check your retirement funding

If you haven’t yet partnered with a financial planning expert, now is the time to find a trusted, independent advisor. You may have group retirement benefits in place couple with several other long-term investments but remember there is a difference between a retirement fund and a retirement plan. Your advisor will assess your current investments, assist with restructuring and rebalancing your portfolio, and develop a road map to achieve your retirement goals. He will also assess whether you are invested too conservatively for your investment horizon and ensure that you are investing in the most tax-efficient way.

Review your disability cover

As your earnings increase, you will need to realign your income protection cover to make sure that you are adequately protected in the event of a disability. When quantifying the amount of disability cover you need, be sure to account for your retirement funding shortfall. Your disability insurance must be sufficient to cover your ongoing living expenses until your planned retirement age and cover your retirement funding shortfall. Do not forget to take any group life and disability cover into account when reviewing your insurance.

Medical aid

Having a comprehensive medical aid and gap cover benefit can be of enormous assistance, especially if you have teenage children. Sports accidents and injuries, orthodontics, reading glasses and contact lenses, physiotherapy and occupational therapy, tonsillectomies and appendectomies are just some of the common medical expenses that crop up during these years, and it makes sense to be comprehensively covered.

Update your Will

It could be that the last time you updated your Will was when your children were born. A lot will have changed since then and now is a good time to update your Will. Make sure that the guardian you nominated in your Will is still the person you would want to take care of your minor children if you are not around. Review the trustees that you have appointed to your testamentary trust and review the terms of the trust. Importantly, talk to your teenage children about your Will and the provisions that you have made for them if you are not around.

Start planning for big expenses

As your teenagers get older, you will need to start planning for large expenses such as vehicles, tertiary education, overseas school or study opportunities, exchange programmes and even weddings. Together with your children, start exploring financing options for their tertiary studies and encourage them to find part-time work such as tutoring, coaching, au pairing or waiting.

Monitor your convenience spend

Your frantic pace of life may tempt you to take advantage of outsourcing but be sure to keep a handle on your convenience spend. Uber and Uber-eats, eating out, cleaning and garden services, bin cleaning, dog walking and grooming, au pairing and other convenience expenses all add up, so be sure you know where your hard-earned cash is going.

Get a handle on all your accounts

In this frenetic period of your life, you likely operate several accounts that are high transaction. Keeping a handle on school fees, medical aid premiums and refunds, insurance premiums and claims, domestic wages, and rates and taxes can be difficult. Try to consolidate your banking, align your debit orders and find a reliable app that gives you a bird’s eye view of your finances.

 Give someone access to your digital life

With so many online accounts, subscriptions and social media portals, it is a good idea to give someone access to your digital usernames and passwords. If something happened to you, would your loved ones be able to access your accounts and manage the household’s finances? Make a list of all the important bank accounts and online portals together with your login credentials and PIN numbers, and give them to your spouse, financial advisor or trusted friend. 

Don’t keep moving homes

As your family grows so too does the need for space. But before upgrading the family home think and plan ahead. Where will your children study after school? What accommodation will you need when your children are students? Where will they park their cars? Are you contemplating a work-from-home option? Do you foresee your parents living on your property in the future? Will they need a carer? Buying and selling homes is expensive so avoid upgrading to a home that will suffice for the next few years only. Think long-term about your family structure and the accommodation requirements you will need beyond the next few years.

Review your short-term insurance

It’s also likely that over the years you’ve accumulated more material possessions, particularly high-cost items such as smartphones, tablets and tech gadgets, sports equipment, jewellery and clothing, so be sure to review your short-term insurance to make sure you are adequately covered.

Insure the stay-at-home spouse

If one of you is a stay-at-home spouse, don’t make the mistake of underestimating their need for life cover. Take account of the valuable functions the stay-at-home-spouse performs which can include cooking, cleaning, driving, tutoring, supervising, nursing and babysitting. If the stay-at-home-spouse was not there, who would perform these functions? How much would it cost you to hire au pairs, homework tutors, school transport services, babysitters and cleaning services? She might not earn an income, but the work she does has economic value.

Stay relevant

The sheer pace at which technology advances is going to make staying relevant one of your greatest challenges going forward. Many older people attest to feeling irrelevant and isolated as technological advancements overtook them and ultimately left them behind. Your professional survival, particularly if you plan to work beyond age 65, depends on you keeping abreast of advances and future-proofing your professional worth. This is not the time to slow down professionally or become complacent in your job. Keep a finger on the pulse of where your industry is headed in the onslaught of 4IR and keep pace with it.

ADVISOR PROFILE

Craig Torr

Crue Invest (Pty) Ltd

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