Financial expert warns: People in their 40s may need to keep working into their 80s


The economic downturn will impact people in their 40s the most, affecting their ability to retire when they want

According to a leading financial advisor and founder of AJ Financial Planning, Alex Jamieson, with economic conditions looking challenging for the next few years, the biggest group of people impacted by the current rise in interest rates and cost of living is the 40-year-old set; people in their 40s. This group takes in millennials, 27 to 42 year olds and Gen X, 43 to 58 year-olds.

“Once upon a time, everyone in their 40s thought they were invincible, and to some degree they still are, but now thanks to the increase in the cost of living and economic softening of the Australian and world economy, things have just got a whole lot harder,” Jamieson said.

“In financial planning, there is what we call the 50/20/30 rule. Traditionally this guides you on how you should be allocating your income. 50 per cent should be reserved for essential payments like mortgage, rent and other living expenses including groceries and power. 30 per cent is allocated to lifestyle choices and the balance to debt, super and savings.

“Because the cost of living is now so high, 40-year-olds are not going to have enough left over to put a reasonable amount into super and nor is their super going to keep up with the rising cost of living based on when they want to retire. Most people want to retire in their 60s and enjoy what years they have left with some degree of health and mobility.

“Much of the retail super sector lost money in 2022, meaning people who put money into institutional super in this year actually went backwards. Thanks to the headwinds areas of the economy are facing, many super funds are going to struggle to reach the dizzy return heights of previous years for some time. This means that your money isn’t working for you as well as what you need or would like it to, especially if you are in your 40s and planning to retire when you want.

“I am sorry to say this, but unless 40-year-olds start making some drastic changes now, they are going to be working until they are 80.”

Jamieson adds that spending usually peaks in your 40s thanks to a large mortgage, living expenses and costs typically associated with kids. Often money is very tight during this time period. People in this age group need to take urgent action.

“The first steps 40-year-olds need to take include a complete change of mindset,” Jamieson said.

“Start acting like you are broke and cut your spending on everything. Get yourself a good financial planner and start saving your money. Acquaint yourself with the power of compounding and start looking for ways to make your money work for you.”

Jamieson also outlines other key things people in their 40s should do.

Review your spending – be ruthless

1.  “It is important to prepare a budget to get a handle on your living costs as there will probably be opportunities to identify excess spending that could be reallocated,” Jamieson said.

“Make sure you are really ruthless with cuts. Every dollar you save can be put into superannuation and other compounding facilities. The more money you burn, the more years you have to slave away working to earn.”

Set up an emergency fund

2.  “Ensure that you have established an emergency buffer fund to cover unexpected costs that come up with a day-to-day living,” Jamieson said.

“Talk to your bank about using the fund to offset your mortgage. The fund needs to be of a reasonable size to cope with illness, job loss, setbacks and other life challenges.”

Get your estate planning affairs in order

3.  “If you have kids, it is time to revisit your will and estate planning affairs,” Jamieson added.

“It is likely this might not have been revisited since the kids were originally born and life has probably changed considerably since then.”

Review and make changes to your super

4.  “Review your superannuation and investment options in your super fund/s to make sure they are aligned to your requirements rather than the default option,” Jamieson said.

“Start with the basics. Make sure you are in the right superannuation fund and also in the right investment option for your retirement strategy, not just the one that suits your workplace. Mistakes in this area can cost you a lot of money.”

Reassess your mortgage

5.  “Speak with the bank and find out what your mortgage balance might be at retirement age, based on the current interest rates,” Jamieson emphasised.

“It is important that when you retire this is paid out. Ideally, you want it paid off well before. Understand what you need to change in order to make sure this happens.”

Jamieson emphasises that while current challenging conditions will pass, many people in their 40s will be impacted more than other age groups due to the nature of life and the cost of living.

“People in their 40s are in a fragile position. Their money management actions over the next few years will determine whether they can actually retire when they want or whether they will be working for many years after this,” Jamieson added.

About Alex Jamieson

oAlex Jamieson, BBus, MFinPlan, FChFP, is the founder and head of AJ Financial Planning and one of the country’s most respected financial advisors. He is located in Melbourne, Australia and has a national client base. AJ Financial Planning is a boutique firm. Alex and his team pride themselves on providing specialist knowledge in the areas of financial planning advice and investment advice.

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