This is the latest in our series of articles that consider the financial challenges for clients at a specific stage in life. This time we’re looking at people who are in their 50’s. This is a really important stage in your financial life as it is often the time in life of maximum income and the greatest opportunity to really build your wealth.

Here are some thoughts on how you might approach your finances differently in the second half-century of your life.

Accept advice and help

We very definitely put this one at the top of the list, as there are some crucial strategies to implement correctly at this stage in your life. If you should make major mistakes in relation to your retirement finding during your 50’s, you probably won’t have enough time on your side to fully recover from them. There are also significant tax saving opportunities available to you in retirement funding,  investment structures and exiting your business. Each of these needs to be considered carefully. This is also a critical time to start thinking about how you will effectively decumulate assets after you stop working and also to plan the transfer of your wealth to the next generation in a tax efficient way. 

Each of these (and more) are important strategies to get right and each of them require careful advanced planning. We modestly suggest that you accept our help in helping you to maximise the financial opportunities open to you. At the end of the day, research has shown us time and time again that clients who accept advice and help from experts achieve better outcomes.

Have crystal clear goals

Now is not the time to muddle along and hope for the best. We encourage you to take a step back from your bank and investment statements and really look into the future. What does your desired life look like for the next 20/30/40 years? When you have this picture clear in your head, then it’s our job to show you what you need to do to achieve it. We’ll create the plan and then work with you every year to ensure you achieve your dreams. Without the clarity of your dreams and objectives, are you just drifting along to see where life takes you?

Don’t touch bonuses

Now we start getting very practical. Hopefully at this stage of life your monthly income exceeds your expenditure. You probably have the back broken of your mortgage or even your mortgage may be behind you. Bonuses that you get in work or from inheritances etc. are very welcome, but in truth probably not necessary to fund your life today. So don’t use them for today, give yourself more options in the future. If invested wisely, they might help you to retire earlier, buy a place in the sun or (not quite as exciting) pay for long-term care later in life. Do you really need that 3^rd holiday this year or the very top of the range car?

Maximise your pension contributions

Once you hit your 50’s, you can get tax relief on your own pension contributions at your marginal rate on 30% of your net relevant earnings. Once you hit 55, this rate increases to 35%. While there is a maximum annual amount of earnings of €115,000 for which tax relief will be given, if you have spare cash there are great tax saving opportunities here. Of course if you have your own business, there are opportunities for even greater tax savings through making pension contributions. As you generally cannot claim relief for years gone by and as the radio ad says, “Once they’re gone, they’re gone”, don’t let these opportunities slip through your fingers.  

Pay attention to your investments

As mentioned earlier in this piece, your 50’s are a time for continued wealth accumulation. It’s really important that you work very closely with your adviser to ensure that your investments reflect your timeframes and your appetite for risk. As mentioned earlier, this also should be done with one eye on your likely investment strategy after you stop working. Are you investing today with an end date of your retirement date in mind, or are you likely to continue investing after retirement and instead have one eye on the future decumulation of your assets? Your investment time horizon may not be 10-15 years, instead it might be 30-40 years still...

Keep the kids moving!

Yes we all want to help our kids and we’re not advocating that you throw your kids out on to the streets once they are through college... But at the same time, be careful about the level of support that you give to them. Support them fully within your means, but don’t let their financial needs derail your own goals. Otherwise financial problems will just stack up for you in the future, and these may also come back to haunt your kids.

Your 50’s are a time of great financial opportunity. Please give us a call and we will help you to make the most of these opportunities for you and your future.

Let's face it, Income Protection is somewhat of a grudge purchase. While it still enjoys the benefit of tax relief at your marginal (highest) rate, it’s another household expense that none of us enjoy paying. After all, you’re paying for a benefit that you hope you never collect... 

sometimes described as the glue in a financial portfolio. The most devastating impact on your financial situation is likely to be caused by a loss of your income, and the inability to replace it.

Unfortunately, people lose their jobs from time to time. However inevitably what tends to happen is that these people pick up new roles elsewhere or take a new path in their careers. As a result, their income may drop for a period of time, but will usually pick up again before too long. These people are in the fortunate position of being able to work.  

Being unable to work because of illness or injury is a whole other matter. Little or no costs are moved from your life, in fact new costs may emerge such as medical expenses, care fees etc. On the income side, there are social protection benefits available, but in reality these deliver no more than basic subsistence payments. So there is often a lot less money coming in, with sometimes more going out…

Income protection protects your most important asset in the event of illness or injury – your income. And yet at the same time, it still doesn’t find its way into everybody’s financial portfolio.  

Your most important asset?

We reviewed some very insightful research from a few years ago among Irish consumers that shines a light on this issue, with some very interesting findings. First of all, when asked to rank their financial assets in order of importance, the findings were,

1. Our home (67%)
2. Our savings (57%)
3. Our pensions (48%)
4. Our income (43%)

The findings are surprising in that most people have an emotional attachment to their home. However without their income, these people will lose all of the other assets (maybe bar their pension). Your income is the enabler of all of the other assets, and therefore is the most critical one to maintain.

How long could you cope?

The research then went on to ask how long employees could cope without their income where they are reliant on social protection, using their savings and maybe selling some assets. The findings here were startling when compared to the reality of income protection claimants.

• 44% of people said they could cope for 3-6 months only.
• 30% said they could cope for between 6 months and a year
• Less than 8% said they could sustain themselves financially for 2 years or more.

However the average duration of an income protection claim is 6.5 years! And that’s an average, many last longer than that. So while having the foresight to maintain a nest egg to see you through a year or two of income loss is extremely laudable and wise, on its own it just might not be enough.

How much of your income do you need to protect?

 This is a really important question. It is really important that we spend time together looking at your specific situation, your expenses and how they might be impacted by a loss of income. You want to have enough cover to meet your needs in the event of a loss of income, without paying too much along the way. You need to consider any sick pay schemes that you might have access to through your employer, as these might impact your cover needs and the cost of a policy to meet your needs.

When asked by the researchers, two thirds of respondents felt that they would require a replacement income of between 50% and 75% of their current income levels. Just over a quarter felt that they would need to protect between 25% and 50% of their income, while 7% felt they would need a replacement income of less than a quarter of their current income. It may be that this last group are approaching retirement and/or possibly their incomes are significantly in excess of their expenditure. Otherwise they may be a little unrealistic about the level of income they would need to replace. 

How much replacement income would you need?

We all have a range of financial challenges, particularly as inflation is rising and energy costs are increasing sharply; making our money go further today, investing wisely, saving for retirement and protecting our main assets. In addressing this final one, never underestimate the value of your income – it is the one single asset that you really can’t live without.