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.