An investment guide for your 50s

If you are aged in your 50s, you wouldn't be alone if the need to have a cohesive financial plan for the future has suddenly leapt to the front of your mind.

While you may be looking to work for some years yet, the idea of retirement and life beyond the paid workforce might be starting to come into real focus.

With preceding years often consumed with maintaining a busy career, family life and the associated financial commitments, it is not uncommon that the years in your 50s bring on the headspace, relative capacity and clarity to get the gears of your financial life and forward strategy really going.

If it feels like ‘crunch time', there is certainly plenty of items to consider at what can be a fairly critical period of time, planning wise.

Amongst them all, here are a few things worth consideration on the path to getting on a good footing ahead of retirement.

Superannuation

Superannuation will most often become a core part of the financial strategy, which can in part be due to an increased financial capacity as fixed costs on the home front may have come down in recent years.

Despite what probably feels like a very fluid legislative landscape, superannuation remains and is expected to remain a highly attractive tax structure in which to accumulate your retirement savings. Earnings on monies held in the superannuation environment are taxed at a concessional 15 per cent and funds ultimately transferred to a pension in your ‘draw down' phase will attract nil tax on earnings (up to $1.6 million per person).

As lower annual contribution limitations apply from 1 July 2017, careful planning now needs to apply to ensure that you take advantage of the window until your retirement age and that you maximise, where appropriate to your circumstances, the use of superannuation on a year-by-year basis.

Lower limits call for starting to contribute earlier than perhaps those before us did. Some general strategies might include:

• Salary sacrifice by diverting some of your employment income to superannuation. Note that until the end of the financial year, those in their 50s will have a final opportunity to take advantage of a higher $35,000 concessional (pre-tax) contribution limit before it reduces to $25,000 from .
• Contribution splitting to a spouse with a lower superannuation balance, creating greater equality in your balances allowing for potential better use of your individual $1.6m superannuation caps.

Superannuation should in most cases be front and centre in your 50s to make the most of the concessions available – it really is a case of use it or lose it.

Rethink risk

The appropriate amount of investment risk (sometimes called your ‘risk profile') is very much an individual thing. Care should taken when applying any rules of thumb about how much investment risk you should apply at a particular age.

There is a natural tendency to pull back on investment risk as we age. There are often quite justifiable reasons for this, including a feeling that the ability to repair loss scenarios in the absence of an employment income becomes significantly diminished.

Having said that, in your 50s you may indeed still have a fairly long investment time horizon ahead of you. We tend to think of retirement as a line in the sand, and although you will begin to draw down on your superannuation for living costs at that time – potentially making portfolio adjustments – it's worth remembering that the bulk of the pot is likely to still be a long-term investment.

Have a plan

Having a ‘plan' tends to roll off the tongue quite easily, but having a true holistic and cohesive strategy at this life stage really becomes critical. It's essential to have a clear sense of where you want to be, and the practical steps you will need to take to have the best possible chance of getting there.

While the retirement vision can be relatively easier to establish, the how and the what can be more difficult.

As consumers we have an vast array of financial products available to us, not to mention complicated tax and fluid superannuation systems. Decisions that are made today can certainly affect outcomes and strategic opportunities in years to come given the interrelation between so many aspects of our money.

It can be very complex to navigate and ensure we are making the best of what is available to us. Enlisting the assistance of an advisor can be most valuable in putting all the pieces of the puzzle together, allowing you to get on with the life part of things.

Insurance review

Personal insurance needs tend to peak when family needs and debt levels are also at their highest. Dependant on your circumstances, if large insurance sums were taken out in preceding years it may be worth undertaking a review to assess your current need. If your asset base has grown considerably and commitments have reduced from that time there may be the potential to reduce the cover and your overall costs.

Note, however, that care should always be taken when making adjustments to insurance coverage, particularly at an age when re-establishing cover on similar terms might be difficult.

Engaging young people

Financial literacy is often a lifelong process and many young people today enter into adulthood substantially unequipped or without the confidence or insight to really use their very valuable time advantage.

While the benefits are perhaps less immediate or direct, making a conscious effort to positively influence children's money habits can go an enormous way in their long-term financial health and independence.

Children in their late teens or early 20s might be thinking to loftier financial goals, so introducing to basic investment principles and compounding returns is a valuable gift.

Lessons in financial literacy needn't be solely about investment principles and concepts, but also about being savvy consumers.

Knowing who to ask and what to ask, assessing value, identifying red flags and so on – the everyday experiences that make for confident decision making.