I’m in My 40s. How Can a Financial Planner Help Me?

Mike and Susan are in their 40s, earning around $150,000 each and raising two children aged 10 and 12.

They had approximately $500,000 in super, a home loan of $400,000 and were starting to notice their cashflow improving.

Like many people in their 40s, they felt like they were doing reasonably well financially.

They came to see me because they wanted to make sure they were making the most of the opportunities in front of them, and work out what their next move should be to build wealth and improve their long-term financial position.

They were time poor and wanted someone to take the reins, provide tailored advice, and make sure it got implemented.

Their goals were to:

• Make better use of their surplus cashflow
• Support their children’s future
• Reduce unnecessary tax
• Protect themselves if something went wrong
• Work out what their next major financial move should be
• Build wealth for retirement

Reviewing their current position

Many people think financial planning starts with investments.

In reality, we often start by reviewing everything else first, and how it relates to their particular goals.

For Mike and Susan that meant looking at:

• Cashflow
• Their mortgage
• Superannuation
• Insurance
• Tax opportunities
• Future education costs for their children
• Retirement projections

Once you understand where someone is today, it’s much easier to identify opportunities that will improve their financial position.

We also reviewed their estate planning arrangements. Like many people, their wills had not been revisited for years and their enduring powers of attorney had never been completed. As parents, ensuring the right structures were in place to protect their family became an important part of the discussion. We also reviewed and discussed their superannuation death benefit nominations.

Where specialist legal advice was required, we coordinated directly with their estate planning solicitor to help implement the recommendations.

Retirement modelling and financial independence

One of the most valuable exercises we completed was retirement modelling.

Like many people in their 40s, Mike and Susan weren’t necessarily focused on retiring tomorrow. What they wanted to understand was whether they were on track and what opportunities existed to improve their future position.

We modelled a range of scenarios including:

• Additional super contributions
• Debt recycling
• Improved investment returns
• Helping their children financially
• Different retirement ages (including semi retirement for Susan)

For the first time, they could see how today’s decisions may impact their future lifestyle and when work may become optional rather than necessary.

That concept alone often provides significant clarity when making financial decisions.

Their super review

Between them they had around $500,000 invested, but like many people, they hadn’t reviewed the investment options for quite some time.

After reviewing their circumstances, retirement timeframe and attitude to risk, they were comfortable increasing their growth exposure. That doesn’t guarantee better returns, but it highlighted an important point.

Small differences can add up over time.

For example, if $500,000 grows at 7% for 20 years, it becomes approximately $1.93 million.

At 8%, it becomes approximately $2.33 million.

That’s around $400,000 difference over time from a 1% variation in returns.

Of course, higher returns generally come with higher levels of risk and volatility, which isn’t for everyone.

While returns can never be guaranteed, it highlighted the importance of regularly reviewing investment strategies and ensuring they remain aligned with long-term goals.

Making their cashflow work harder

Mike and Susan had reached the point where they had surplus cashflow each month and wanted to know what they should do with it.

We looked at:

• Additional super contributions
• Debt reduction
• Building investments outside super
• Debt recycling strategies
• Future education funding
• Retirement planning

Like most people, there wasn’t a single perfect answer and the solution involved balancing several competing goals at once.

Debt recycling

One strategy we explored was debt recycling.

They liked the idea of reducing their mortgage but also wanted to start building investments faster.

Mike and Susan already had approximately $100,000 in managed funds and a home loan of around $400,000.

Rather than leaving things as they were, they sold the managed funds, used the proceeds to reduce their home loan, then re-borrowed $100,000 and reinvested it in a portfolio aligned to their risk profile and long-term goals.

Capital gains tax did apply, however we were able to reduce the impact through concessional contributions to superannuation.

It’s not appropriate for everyone, but for the right clients it can improve both tax efficiency and long-term wealth creation.

Their existing investments also had a significant concentration to the technology sector. While they were comfortable retaining exposure to tech, we diversified the portfolio across a broader range of sectors, asset classes and regions to reduce reliance on any one area of the market.

This strategy effectively converted $100,000 of non-deductible home loan debt into investment debt.

Assuming an interest rate of 6%, the annual interest cost would be around $6,000. With a marginal tax rate of approximately 39%, this could create an annual tax saving of around $2,340.

Over 10 years, that could equate to approximately $23,400 in tax savings, before allowing for any investment growth or future debt recycling opportunities.

The objective wasn’t simply obtaining a tax deduction. It was making their balance sheet work harder by building investments while improving tax efficiency over time.

We also reviewed their home loan structure and interest rate, with the help of a trusted lending professional. Small improvements to lending arrangements may not seem exciting, however over a number of years they can result in meaningful interest savings and improve overall cashflow.

Protecting what matters most

Another area we reviewed was insurance, which is often overlooked until something goes wrong. When I look at younger families like Mike and Susan, it often becomes clear that many of their goals depend on their ability to continue earning an income and looking after their family. Without that, a lot of the plan can quickly unravel, leaving goals unattainable.

Mike and Susan had insurance in place, but it had not been reviewed for years.

With children, a mortgage and strong incomes, it made sense to revisit:

• Income protection
• Life insurance
• TPD cover
• Trauma cover

Through the review, we identified that some cover levels were higher than required, while other areas were not structured as effectively as they could have been. After completing a needs analysis, we adjusted the cover to better reflect their current circumstances, improving their protection while also reducing their ongoing premium costs.

The result was greater confidence that if something serious happened, their family and long-term financial plan would remain on track, and they were only covered at the level they needed to be.

Planning for the kids

As children get older, future costs become easier to see.

• University costs
• First cars
• Potential support with a home deposit
• Costs of living out of home for the first time

Mike and Susan wanted to help their children, but not at the expense of their own retirement.

Through modelling, they were able to see what was affordable and how those goals could fit alongside their retirement plans.

Options we considered were:

• Saving funds in the offset account and earmarking them for the kids needs
• Growth- focused investment bonds
• Personal investments
• Personal investment using borrowed funds

Reducing tax

We also reviewed contribution strategies.

Using simple numbers, every additional $10,000 concessional contribution could produce a tax saving of approximately $2,400, assuming a marginal tax rate of around 39% and contributions tax of 15%.

If Mike and Susan each contributed an additional $10,000 per year, the combined family tax benefit could be around:

• $4,800 per year
• $48,000 over 10 years
• $96,000 over 20 years

And that’s before considering any investment earnings on those additional contributions.

More importantly, those additional funds remain invested within the tax effective superannuation environment, potentially compounding for decades.

On its own, it may not sound exciting. However, when combined with compounding investment returns over many years, seemingly small decisions can have a significant impact on future retirement outcomes.

Deciding on the next big move

This was probably the most valuable outcome.

Mike and Susan had no shortage of ideas.

• Investment property.
• Debt recycling.
• Additional super contributions.
• Building an investment portfolio.
• Helping their children.
• Saving to the offset account.

While each strategy may have had merit on its own, the real value came from bringing multiple strategies together and understanding how they interacted with one another.

Debt recycling, super contributions, investment planning, insurance, retirement modelling and planning for their children all needed to work towards the same goals.

Sometimes advice isn’t about finding the single best strategy.

It’s about understanding the trade-offs between multiple good strategies and building a plan that brings them together in a way that supports your broader goals.

Before and after advice

Before advice

• Good incomes
• Growing super balances
• Plenty of information and ideas
• Several competing goals
• No clear roadmap

After advice

• Clear priorities
• Reviewed super strategy
• Updated insurance position
• Debt recycling plan
• Strategy for surplus cashflow
• Greater confidence around retirement and family goals

They also had someone coordinating the moving parts. Rather than trying to manage their accountant, solicitor, lender and investment strategy separately, they had a trusted adviser helping ensure everything worked together toward the same goals.

Most importantly, they had a plan and someone to take the reins and ensure action is taken.

Final thoughts

For many people, their 40s are the decade where financial decisions start to have a much larger impact.

Retirement is getting closer, children are becoming more expensive and cashflow is often improving. At the same time, opportunities start appearing around investing, superannuation, debt reduction and tax planning.

A financial planner won’t make the decisions for you, but they can help ensure the decisions you make today support the life you want tomorrow.

If you’re in your 40s and wondering whether you’re making the most of your current position, a conversation can often help identify opportunities you may not have considered.

I offer a complimentary 15-minute phone call where we can discuss your current circumstances, your goals and how financial advice can help you.

Feel free to reach out if you’d like to have a chat.

 

General Advice Warning: The information in this article and the links has been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this article, consult a professional financial advisor to consider whether it is suitable and appropriate for you and your personal needs and circumstances. Before making a decision to acquire a financial product, you should obtain and read the Product Disclosure Statement (PDS) relating to that product, together with the Target Market Determination (TMD).

Projections are illustrative only and are not predictions or guarantees of future outcomes.

The examples above are illustrative only and are based on a range of assumptions regarding investment returns, inflation, spending patterns, Age Pension eligibility and life expectancy. Actual outcomes will differ