Some years ago, I was asked to write the New Zealand edition of an Australian book called “Catch Up At 50”. I turned down the opportunity because I had a good number of other things on my plate at the time. However, I am now sorry that I did decline: my experience over the last few years is that 50 is about the age when the lights come on: many suddenly think that they are well behind the financial eight ball – and panic.
Even though a 50th birthday can be a disturbing time for many reasons (not the least financial ones) there is hope: your 50s and 60s can be the most productive years. For many, they are the gravy years; the years when things are fat and flow well. You may feel that time is slipping away, but in financial terms, from about age 50 is the very best of times.
In your 50s, the hard scrabble of your earlier years relaxes, and if you do a few things right, you may make much faster financial progress than you ever imagined.
Throughout most people’s thirties and forties, money is a struggle: you might have managed to buy a house (somehow – that is never easy) but in these decades, it is often tough holding the budget together and making ends meet. There is a mortgage to pay, children to tend and a career to advance – this is a very busy and stressful time of life; you work hard but expenditures appear to be on a never ending upward spiral. It seems you will never get ahead financially.
At 50, the mortgage is probably repaid (or, at least nearly so), but there may be very little savings. Retirement no longer seems in the far distant future: 15 years does not seem long to build a retirement nest egg so that you no longer have to work. For some this is all a bit depressing.
Nevertheless, although it may not seem so at the time, you should now have some financial tailwinds. The years in your fifties and beyond ought to be gravy years: the mortgage is under control, the children financially off your hands (they may have left home three times but only come back twice) and, at the top of your career, these ought to be the best years of earnings.
This is the time when the financial planets align and you really do start to get ahead and build some savings.
The first thing to do is to be sure that when the mortgage is repaid, the amounts that you previously paid to the bank for your home loan are put into a savings plan. By all means, celebrate the final mortgage payment with a night out and a good bottle of Champagne. The next day, however, set up an automatic payment so that the amount that used to go to the mortgage is not spent but goes to savings.
Resist the idea of re-mortgaging to buy a bigger or more expensive house. As a financial plan, this has little to recommend it and you are unlikely to need the extra space (surely the kids won’t come back for a third time!) In fact, rather than a more expensive house, you could even consider downsizing.
As the financial pressure comes off, make sure that you do not over-spend – remember that although this is a time when you have more money, if you do not take care, it will slip through your fingers.
Finally, whilst it is important that you start to save as much as you reasonably can, you also need a good, coherent investment plan. I am the first to say that the savings rate (i.e. how much you can put aside) is more important than investment returns, but this does not mean that the way that you invest is unimportant. As you get older and as you build more savings, the money needs to be invested more with more certainty of a good result. Your 50s and 60s are not a time for a gung-ho investment approach – you do not want serious mistakes.
These should be great years: the pressures are off and you will never be more fit and healthy, nor have more financial potential, than you have now. Do not squander these gravy years – they are probably all you have left to make good choices. Remember that after these best years of earning, you will be left with only the consequences of the choices that you have made.
Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com. This article is of a general nature and is not personalised financial advice.