Financial Choices and Questions in Your 50s

What’s a sandwich generation to do when they’ve managed to finish buttering one of the bread slices?

Put another way – now that you’re in your 50s and managed to your mortgage right down, what should you do now? And the sheer array of options in front of you makes this question even more challenging!

In my time as a financial adviser, I’ve seen plenty of people reach this (successful) point in their financial journey and freeze.

After all, it’s actually simpler to manage your finances when a big chunk of your salary is being shoved to the bank.

Options add complexity. And uncertainty. And the odd bit of nervousness too.

Nobody wants to make a mistake.

Especially when you’ve become sharply conscious of

- how long you have left in your career

- how quickly your time with the kids passes

- how long we have the people we love.

It’s a big time!

So, in my experience, here are some of the many choices and questions people come across in their 50s. 

1. What Should I Do With Those Repayments Now?

Now that you’ve cleared – or heavily reduced – the mortgage, you may be wondering what to do now.

Which will be different for everyone, but let’s make some assumptions.

Let’s say you started with a round figure mortgage - $500,000. At 7%, you’ve probably been paying around $4,200 per month, or $50,400 a year in mortgage repayments.

Getting that amount back into your budget can change your circumstances.

Realistically, you have three options for what to do with it:

a. Save it

b. Spend it

c. Invest it

Each option has pros and cons, of course.

Saving it will boost your sense of financial security, but won't it grow. Plus, inflation will gradually eat away the value of it.

Spending it will be more fun.

You get to do the things you enjoy, you get to travel, you get to buy nice things and you get to revel in the sheer fun of consuming it.

This can be gratifying after smashing that loan for so long.

Yet, this doesn't contribute to your future security at all and, eventually, the gloss will wear off. You will either keep chasing those extra expenses, or you'll feel guilty for having spent so much.

Investing is fantastic for your future. You will accumulate real wealth, and you have a long enough runway that you can build a healthy nest egg.

But you'll be taking money away from today and putting it aside for tomorrow, which can be frustrating. Particularly after paying a mortgage down for 20 years or so.

The key point here is that you need to find a balance that works for you. And that balance will look different for each person - which is where financial advice comes in.

2. Can I Put More Into Super?

Of course, one of the options is to start paying more money into superannuation.

This can lead to some fantastic outcomes.

You're young enough that you have 15 to 20 years of contribution still, which lets you focus on the long-term. This time line lets you ride out the market gyrations that might leave you feeling a little bit nervous.

You’re probably at the point where you’re seeing some real compounding kick in. Hopefully without taking on a huge amount of risk.

The next question then though is how do you put the money into super and you have two options:

- Pre-tax

Pre-tax, or ‘concessional contributions’, include your work , salary sacrifice and personal, concessional contributions.

You generally pay tax on the way into the fund. But there can be some nice personal/income tax deductions along the way.

- Post-tax

Made with after-tax money, these are ‘non-concessional contributions’. Often you won't pay tax on the way into the fund, or on the way out (because you’ve paid income tax already).

But there often aren't any tax benefits to you personally either.

Finding the optimal mix between these two – and then what to do with it once it’s in the superannuation environment – is a place for independent financial advice.

3. Should I Be Investing?

You may have already started investing outside of superannuation, or you may have dedicated your entire surplus income towards slaying that mortgage dragon.

Either way, you might like to know that financial planners like to see people develop three ‘pools’ of wealth:

a. Your Home

By paying down the mortgage and waiting for good capital appreciation along the way.

b. Your Superannuation

10%-odd of all of your income should be landing in your retirement savings account. Growing this pool of - very tax-effective - wealth will help you live a more comfortable and secure life in retirement.

c. Personal Investments

Building a portfolio of investments outside of super and your home will give you flexibility.

You can’t live off your equity, and you can’t access your super until you’re in your 60s.

So what if you want to retire early? What if the kids need a helping hand? What if you need a lump sum for any reason?

Building wealth in your own name is the fast-track to that kind of flexible security.

4. Is It Too Early To Start Thinking About Retirement?

Short answer – no!

Even though retirement might be a long way off, it can be beneficial to sit down every couple of years and calibrate your journey.

Work out your budget now and what you’re likely to need in retirement. Then you can work back from that and estimate what kind of capital you’re going to need to support such a lifestyle.

We advisers have sophisticated tools to help you work out your ‘retirement number’.

But you can use the (very imperfect) rule of 25 to guesstimate what you might need. Essentially, you take the income you expect to need in retirement and multiply it by 25. This will give you an idea of what you should be aiming for.

Say you want $75,000 in today’s dollars, for instance –  in this case, the answer is $1.875m.

Now, this rule is very rubbery. For instance, it assumes you won’t use up any of the capital in retirement. Which is ludicrously unlikely for anybody not on an AFR Wealth List. So it’s best used as a very approximate starting point to use when you first start looking at your retirement plan.

5. Do I Really Need to Start My Estate Planning?

Again, short answer – yes!

While you’re healthy and the chances of needing to use the plan are small, now is the time to start confirming your plan.

Which goes beyond simply ‘getting a will’.

A real estate plan – drafted in partnership with an experienced and accredited estate planning solicitor – takes your wishes and intentions and puts them into writing.

Maybe you’re worried about the impact leaving the kids six-or-seven figures will have on them.

Or maybe you’re really clear on what you want done in certain medical circumstances (do they leave the machine on, or turn it off, etc?).

Either way, working through the process will leave you feeling secure and established.

6. Should We Downsize?

As life changes, you might find you no longer need all that space you needed when the kids were younger.

Maybe the kids have started moving out, or maybe your job doesn’t accommodate working from home anymore. Or maybe you’re just sick of still being the only one that cleans the pool / walks the dog / mows the damned lawn!

No matter the reason, you might start thinking about changing your house in the next few years.

And downsizing can have a great impact on your financial situation. Selling for more than the new place costs frees up equity and grants you more options.

There can be traps, of course - it only really works when you're actually downsizing, not up/rightsizing.

But, done well, it can have a transformative impact on your financial picture.

I’m going to end this post there because I have another 7 choices to discuss. I’d like to keep this list short enough to make it easy to read – a relative sprint, not a marathon!

In the meantime, though, I’d love to hear about the questions you’ve come across as your financial situation has improved.

Every person’s situation is so different, but if you’re wondering about something then it’s likely someone else is too – so let me know and we’ll try to find the answers all together!

“This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.