How to build wealth in your 50s
Welcome to the pivotal decade of your 50s – a time full of opportunities to supercharge your financial future and build lasting wealth for your retirement. As Australians in this dynamic age group, you're at a unique juncture where decades of experience meet the promise of exciting new ventures. Read on to learn more about how to build wealth in your 50s. Hint: it helps to have a financial advisor by your side.
Building wealth in your 50s
As of 2020, the Australian Bureau of Statistics (ABS) reported that 55% of people over the age of 55 were retired and the average retirement age was 55.4 years old. While the prospect of retiring early is exciting, the age pension isn’t available until the age of 67 for people born after 1957, so it’s important to create a retirement plan that allows you to live comfortably if you retire early.
Even if you plan on working into your 60s, building wealth allows you to travel and live more freely once you become a retiree. Whether you're envisioning a comfortable retirement, pursuing long-held dreams, or simply seeking financial security for yourself and your loved ones, your wealth building journey is far from over!
The average net worth of an Australian at 50 years old is more than $194,000. While this might sound like an overwhelming figure for some, it’s important to remember that net worth factors in all of your assets. Your net worth includes the value of your home, business, super, and other investments.
If your finances are not where you want them to be in your 50s, it’s not too late to increase your assets and decrease your debts. Here are some tips for how to build wealth in your 50s.
Create or update your financial plan
Just 36% of Australians say they create a budget. Whether you do or don’t have one in place, your 50s are a wise time to re-examine your budgeting habits and update your financial plan. On top of monthly spending, you may want to take a look at your debt payoff schedule and your investment contributions.
Ask yourself: if you continue on the same financial path, can you afford to retire in five years? What about 10 years? A financial advisor is a huge asset in this department. They can help you set financial goals and develop a tailored retirement plan to get you there. They may also identify places where you are spending too much on insurance or could reduce debt faster.
Manage debt wisely
Retiring comfortably is much more difficult if you have a significant amount of debt. This is especially true if you have non-deductible debt payments that don’t serve as a tax offset. Prioritise your debt payments accordingly.
You may also want to be judicious about how much you borrow for your kids to attend a university, start a business, or explore other endeavours. Taking on HECS loans or other funding in your 50s could cut into your disposable income when you retire. While it’s understandable that you’d want to help out family with their goals, you should make sure any assistance you offer is aligned with your broader financial goals.
Maximise your super contributions
The Association of Superannuation Funds of Australia (ASFA) says that a superannuation balance of at least $595,000 is necessary to live a comfortable retirement as a single adult. For couples, the recommended figure jumps to $690,000. If you’re not on pace to meet this mark by the age of 67, it may be time to increase your super contributions.
Aside from maximising your own contributions, you may want to increase your spouse contributions. This can help to build savings and also serve as a tax offset. If your spouse has low wages or doesn’t work and you contribute to their super, you may be eligible for a tax credit of up to $540 per year.
Review your super investments
Your 50s could be the last chance you have to make meaningful changes to your super investments before you hit retirement age. Therefore, taking a more conservative approach as you enter your final working years could be prudent.
If you don’t think you have enough money to retire, there are a few ways to boost your superannuation balance. First, start making additional contributions if you’re able to. From 1 July, 2021, the maximum contribution per year has been $27,500.
You can also search for lost super money. Super money gets lost when you change names, jobs, or other personal details at some point and a super account becomes inactive. The money is sent to the Australian Tax Office (ATO), who can reunite you with the funds by putting it into your active super account. You can search for money online using your myGov account.
Finally, you may qualify for a Transition to Retirement (TTR) pension. This programme allows some people under the age of 65 to access up to 10% of their super each year. You can use this money for expenses, or invest it elsewhere if you think you can get a better return.
Think about downsizing your home
Downsizing your home has several benefits. Not only does it reduce your housing costs in your 50s and free up more money for savings, but it may allow you to make a huge super contribution. The ATO allows you to contribute up to $300,000 from the sale of a home into your super if you qualify for the programme. You must be over 55 years old, have owned the home for at least 10 years, and meet certain other criteria.
Invest your bonuses
As you reach the end of your career, now is not the time to use bonuses to splurge on major purchases. Instead, you can build wealth by investing your professional bonuses. You’re still years out from the government Work Bonus programme while you’re in your 50s (you must meet Age Pension requirements), but you can still build a plan for how to invest those savings if you take advantage of them later.
Partner with a financial advisor
The good news about building wealth in your 50s is that you don’t have to do it alone. A financial advisor can bring years of experience to the table. Not only that, but a financial planner is able to bring a more objective eye to your finances and let you know where you’ve been making mistakes or missing opportunities.
This is the stage in your life where the goal is to make as much passive income as possible. In fact, some people may find that the interest they earn on their investments could outsize their income from working. As more and more of your net worth is tied up in savings accounts, stocks, equities payments, and other investments, it’s only natural that an experienced guiding hand can help.
Many people are not aware of the full suite of services offered by a financial advisor. They do more than create budgets, financial advisors can:
Give an overall analysis of your finances. Having a professional take a look at your general financial health can be beneficial in lots of ways, especially if they’re able to identify any areas for optimisation.
Make timely recommendations. As the government makes changes to age benefits and interest rates shift, an adviser is poised to help you adjust. A financial planner could offer recommendations based on current market conditions, which you may not be aware of.
Help define your financial goals. It’s hard to build a financial roadmap if you don’t know the destination. Whether it’s saving for a large-scale purchase, investing for your children’s future, or planning for retirement, advisers can develop customised strategies to move you toward these goals.
Offer investment advice. Financial advisors help remove emotion from investment related decisions and can help you make rational choices.
Create plans for your estate. As you enter your 50s and near retirement, estate planning becomes more important. Your advisor can help ensure your estate plan is in order by working with you and your legal professional.
Assist with business finances. While financial advisors cannot draw up legal documents, they can assist a client in referring them to the appropriate business advisory and corporate finance specialists based on your goals and needs.
Assist with personal insurance. Financial advisors can work with you to help develop a personal insurance strategy, which aims at protecting you and your loved ones from life’s unexpected events.
Building wealth in your 50s is all about refining where you invest and maximising both passive income and super contributions. It’s not too late to set yourself up for a comfortable retirement. Still, being in your 50s does require more urgency in decades past.
Ready to take the first step towards building wealth in your 50s? Reach out to a wealth management expert today.
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