Four questions about investing in your forties

Many investors find that it becomes increasingly difficult to stay on top of their finances in their forties as their time is limited and expenses often rise considerably during this time – especially for those with children.

In this column, Lesyl Potgieter, independent wealth planner at Sasfin, answers four questions about investing in your forties.

1. What are the most common mistakes associated with managing money and investments in your forties?

There are often various significant demands on your time during your forties from building your career and family, which means that many investors don’t set up a proper financial plan or neglect to review the plans they already have in place.

Employers may provide a pension plan but for those who aren’t members of an employer-sponsored pension or provident fund it is critical to save for your own retirement and to utilise the tax deductions allowed by Sars in full to build up tax-efficient, inflation-beating long-term investment savings over your working life.

2. What type of insurance cover do you need in this phase of your life?

In your forties your biggest risk is that you will lose your ability to continue to generate an income. If you don’t belong to a group life scheme through your employer’s retirement fund, it is really important to ensure that you own a personal risk income protection policy to provide adequate cover for your needs. If you cannot generate an income it also means that you can’t save and invest. If you are unable to work and earn regular income due to an accident, illness or disability event it could turn out much more expensive than to untimely pass away. It is therefore important to ensure that you have adequate cover, including disability and dread disease cover, and to review it as you earn a bigger salary over time as your lifestyle expenses will also increase. Investors should also ensure that appropriate medical (health care) and short-term insurance cover is in place and is sufficient for their specific needs.

3. Investors may want to save for their children’s tertiary education. What would you propose?

There are several savings vehicle options that could be considered.

One good alternative is the National Treasury’s “new” tax-free savings account (TFSA). Individuals (including minors) are allowed to invest up to R30 000 a year (up to a lifetime limit of R500 000 per person) in a TFSA that can grow tax-free. It is also more flexible than approved retirement funds as it is fully accessible before 55 and not limited to the Pension Funds Act’s Regulation 28 asset-allocation rules. However, this TFSA is not a replacement for a good investment-linked retirement fund vehicle.

These TFSAs are excellent long-term savings vehicles and investors have access to the money prior to retirement. The longer the investment time frame, the better. It will take roughly 16 years to reach the lifetime capital contribution limit in these accounts.

4. In your twenties and thirties you may be inclined to postpone saving for your retirement and argue that you will pay attention to it later on. If you haven’t done any retirement planning by the time you reach your forties, what should you consider?

An appointment with a qualified financial advisor for a wealth planning diagnosis is similar to visiting your medical doctor for a regular health check-up. If your health state has never been checked to see if you are at risk for cancer or other serious diseases, you would never know if you have a reason to intervene and adapt your behaviour. This is also the case with financial planning. If you haven’t done any retirement planning needs analysis and if you do not have an appropriate strategy in place it is important to see a professional financial advisor to assist you in drafting an integrated lifestage plan and to assist you to implement it according to your priorities and goals. In performing the financial needs analysis to identify shortfalls concerning specific areas of importance an independent financial advisor worth his/her salt can add considerable value with sound guidance and by offering appropriate alternative solutions.

In your forties there is still enough time to remedy the situation, but postponing retirement planning for another five or ten years will make it that much more difficult to realistically ensure a comfortable retirement.

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