Making the most of your asset building
years
Harness your peak
earning years to achieve important financial goals, with the right mix of asset
building strategies.
During their 20s
and 30s, most people focus on the basics of financial security: families, first
home deposits, super contributions and personal investments.
By the time you
reach your mid-forties, things have usually changed. You’ve progressed in your
career and you’ll typically see your salary and net worth rising, along with
your living expenses. More importantly, you are just about to enter your peak
earning years. In terms of building assets, these can be your golden years so it’s
important you plan to use them effectively.
Sorting out the options
This is a period
of many options, and a few risks. Should you concentrate on paying off your
mortgage? Reducing your tax? Building your personal investment portfolio? Making
a career change? Investing for a more comfortable retirement? Or a combination
of these strategies?
Finding the right
answers means some serious thought about what your life and investment
priorities are, and sitting down to talk with your financial planner may help.
The answers are different for each of us, and getting them right is the key to maximising
the financial possibilities that these peak earning years present.[i]
Sylvia and Gerry’s story
Sylvia, who’s in
her mid-forties, runs her own catering company, while Gerry, also in his mid forties,
is a structural engineer. The older of their two sons will be completing school
next year.
Gerry was recently
promoted and the boost to his salary means they expect to have at least $13,000
to save, invest or spend in the coming year. Gerry intends to continue salary
sacrificing to build up his super which now stands at $267,000, while Sylvia
has accumulated $22,000 in her fund. She plans to boost her super when she
sells her catering business sometime after she reaches 55, or the boys have
left home.
They believe
their insurance cover is adequate; however, they ran down their modest cash
reserves to support Sylvia’s new business, and want to add at least $15,000.
They are happy to
continue paying off their variable rate mortgage which is $280,000, though they
are not sure if they should be more aggressive in reducing that.
When Sylvia and
Gerry met their financial planner, they brought along their list of questions,
though Sylvia was more interested in super while Gerry’s focus was on building
their investments.
Over several
meetings, their planner presented them with a number of scenarios. Sylvia and
Gerry were able to weigh up paying down their mortgage with their surplus funds
over time, compared with salary sacrificing that same money into super. The planner
also indicated to them the possible impact of fluctuating market conditions on
their super.
They also
determined the lump sum amount required if Sylvia and Gerry wanted to retire
when Gerry reached age 65.
This information gave
some focus to their discussions. They decided to pay down their mortgage with some
of their surplus funds each year, and contribute the remainder of the surplus
funds to their managed investment portfolio. This allowed them to build their wealth
inside and outside of super to bolster their retirement goals.
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