I’m in my 40s. Am I on track for retirement?

In your 30s, perhaps you didn’t even want to think about retirement, but in your 40s it’s time to get serious about saving, says wealth adviser James Paterson.

Paterson, who works for Pie Funds, says at this stage of your life, your income should be going up. It’s a great time to start putting money aside.

Your 40s can be among the highest-earning years in your career. The big risk now, he says, is ‘lifestyle creep’, where your spending goes up as your income grows.

Paterson says in his experience, those with a net worth of more than $1 million typically spend no more than 30 per cent of their income on housing. This is a useful reference point. Work out how much of your income goes on rent or the mortgage, and think about Paterson’s statistic if you think you need a bigger house, or a bach.

There’s time to catch up

Haven’t started yet? Don’t panic. It’s important to be aware of how you’re tracking for retirement at this point, says Paterson. But if you’re behind, don’t worry, you still have a fair amount of time to catch up. And be wary of taking on too much, or uncalculated, risk with your money as you try to pick up the pace. Is debt a big drag on your cashflow? Concentrate on reducing your mortgage or paying off your credit card. The less debt you have, the more money you have to save or invest.

Make sure you’re getting the right advice. Avoid pitfalls by remembering that opportunities that seem too good to be true probably are.

How am I doing?

Paterson has crunched the numbers for the average 40-year-old. His figures assume you’ll be earning $75,000 in salary by the time you retire at 65, and want to earn 80 per cent of this in retirement.

This means you’ll need to have roughly saved at least three times your salary at age 40, 4.5 times your salary at age 45, and six times by age 50.

Check your level of risk

In your 40s, it’s a good idea to look again at how you feel about risk, says Paterson. “Continue to check every few years, or if you go through any significant life changes.

“You want the right amount of risk to reach your goals in your time frame, and no more. And don’t take on so much that it makes you uncomfortable.”

A good strategy is to diversify into different asset classes to spread your risk. Check the type of investments you hold are still the right ones for your goals and time frame.

Get good advice

As your investments grow, you may have accumulated enough to justify talking to an investment adviser, says Paterson.

Having the right advisers around you, including lawyers and accountants, can save you money and help maximise your returns.

Some advisers charge upfront costs and others are paid by commission and fees on the products they recommend. Paying upfront usually means your adviser can be more independent.

Protecting your assets

If you’re self-employed or own your own business, consider things like trusts, to help protect your personal assets. A lawyer will be able to help you decide if you need this.

Make sure you have the right insurances in place. At this time of life, income or life cover might be suitable. Speak to an expert to find out what you need.

If you have children, you’ll be spending a lot on schooling and kids’ activities. To avoid stress, try to keep track of spending by keeping to a budget.

Start teaching your kids about money, and involve them in your own financial decisions. If they understand how finances work, they might avoid mistakes later.

Look ahead

“Visualise what life will be like in the future,” says Paterson. “Studies have found that those who feel connected to their future self are more likely to wait until they’re older for reward.”

That means they’ll be less likely to dip into their savings for immediate purchases. They’re more likely to put aside greater amounts now towards their retirement funds.

That said, it’s also good to enjoy what you have, he says.

“Still treat yourself and your loved ones,” he says.

“Create those special memories over this busy period of your life. Planning for retirement is important, but don’t let that take you away from living and enjoying the here and now.”

James Paterson is the Head of Wealth and an authorised financial adviser at Pie Funds. You can access his disclosure statement free of charge at www.piefunds.co.nz. Information correct as at July 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.