Retirement can start to feel closer when you’re in your 40s. The good news is, there’s still plenty of time to make decisions that could have an impact on your future financial wellbeing.

Let’s start with the good news: studies1 show that your income peaks between the ages of 45 and 54. You’ll potentially have more money than ever – but you may also have unexpected or unwelcome expenses, like divorce2. At this age you might also put retirement planning on the backburner in favour of more pressing financial commitments, such as your mortgage and kids’ school fees. Use these potential life changes as the impetus to re-evaluate your assets and income, and look at how you can maximise savings for your retirement.

In your 40s, retirement age is still some 20 years away and, while that seems like plenty of time, your decisions now can help secure your financial future. Read on to find out how to save for retirement in your 40s.

Calculate how much you’ll need for retirement

Keep tabs on how much you’re likely to need in retirement by checking the retirement standards published quarterly by the Association of Superannuation Funds of Australia (ASFA). Calculate this against your own super balance to give you an idea of how soon you’ll be able to say goodbye to the 9 to 5.

According to the Association of Superannuation Funds of Australia, by the time you reach 49 you’ll have between around $87,500 and $145,0003 in your super account. The same group estimates singles will need retirement savings of $545,000 for a comfortable retirement, while couples will need combined retirement savings of $640,0004. Are you on track to getting there in the next couple of decades?

Set realistic financial goals

While your financial goals in your 20s and 30s may have been idealistic, as you get closer to retirement they should become realistic. It’s time to develop a clear plan for your savings, with achievable short, mid and long-term targets in working towards your overall retirement goal.

Live within your means

Your 40s are typically peak earning years, but with Australia in the grips of a recession, many things aren’t typical right now. One thing that’s changed is where we do our work. At the start of the coronavirus epidemic, more than 10.5 million Aussies swiftly transitioned to working from home5, and many people are yet to go back to the workplace. While there might have been some initial expenses to set up a suitable home workspace, there’s also a reduction in day-to-day costs like commuting. Consider funnelling any of this cash into your savings instead, to actively save for your retirement in your 40s.

Become more mindful around spending on big-ticket items as well – before a splurge, try taking a day (or a week) to give yourself time to think about how much you really need the item. You’ll be surprised at how often you decide it’s not essential to your life, and the money you save can be added to your retirement savings instead.

Review your investments

Your super might be ticking along, but what about other investments? It’s not too late to start saving and investing. Work out what style of investor you are so you have a better understanding of how comfortable you are with risk. Then talk to a financial adviser about creating a portfolio that suits you, which might include property, shares and other investment classes.

Aim to be debt free

Entering retirement with debt means juggling repayments with a high interest rate, which will eat into your retirement income.

To enter retirement debt free, look at paying off your home loan before you retire. Preparing for retirement in your 40s might mean getting a better deal on interest rates or creating a budget that allows you to make extra contributions to your mortgage, above your minimum monthly repayments.

Make sure you pay off your credit card balance in full each month so you don’t accumulate interest. Be cautious about borrowing money that you won’t be able to pay off in a short period of time.

Update your insurance

For many people, COVID-19 has been a strong reminder of how much we value good health and wellbeing – and how quickly things can change. Having the right kind of insurance can help create peace of mind when you need it.

Review your private health insurance to make sure it’s still right for your needs, particularly if your circumstances have changed or you have a growing family. Income protection and life insurance help to protect you and your family if you can’t work due to injury or illness, so you can continue to pay the bills without dipping into your savings.

Plan for your kids’ futures

Your kids mean the world to you – we get it. But their education doesn’t have to come at the expense of your retirement. As part of your retirement planning, consider setting up a separate savings account to fund things like your kids’ school and university fees, so you don’t have to dip into your retirement fund for their education.

Show your children how and why you’re cutting back on discretionary spending (meals out, trips to the movies) to make their long-term goals (like getting a job) a priority. You’re never too young to develop a healthy understanding of finances and budgeting.

1 Australian Bureau of Statistics (2018), Employee Earnings and Hours (All employees, average weekly total cash earnings, number of employees - age category, May 2018)
2 Australian Bureau of Statistics (2019), Marriages and Divorces, Australia 2018
3 Association of Superannuation Funds of Australia (2017), Superannuation Account Balances by Age and Gender
4 Association of Superannuation Funds Australia (2018), ASFA Retirement Standard
5 Roy Morgan, Hard To Switch Off Work For Many Australians Working From Home

3 steps for getting serious about retirement in your 40s

Calculate your retirement savings goals

Find out how much you’ll need for a comfortable retirement and then create a savings plan to help you achieve a debt free retirement.

Set realistic financial goals

Create short, mid and long-term saving goals. Live within your means, maximise your current income and review investments.

Plan for your kids’ financial wellbeing

Lead by example and teach your children to start saving and investing for long-term goals. Help kids create a simple budget that they can adjust as they get older.

How to save for retirement at every age

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