Am I too old to achieve Financial Autonomy?

Finding that people are able to reach Financial Autonomy as late as their 50s and 40s is not unusual. For those who have children, the majority of their lives up to this point have been in survival mode. Money in equals cash out. The first step is to save a deposit on a house, and then you need to get your mortgage in order. Either the first house is not the forever home, or renovations and improvements will be required. You also have to consider the cost of raising children.

It’s not unusual for me to receive emails from people who want to reach financial stability but are worried it’s too early for them.

This episode is perfect for those who are worried about the possibility that it’s too late to build wealth and achieve financial stability.

Recently, I received a call from a 54-year-old single mother. She had a decent job and a fair amount of super but still owed a large amount on her mortgage. She wondered how she would ever afford a comfortable retirement.

We were able to determine the retirement age that she would like to retire at. The model showed that her desired retirement age could be achieved. However, after playing around with the modeling, she decided she would rather work a couple more years to get a better quality retirement. This is a great result.

It’s important to have a clear vision of what your retirement years will look like. Prioritizing and setting goals are always the first steps. Some people may want to enjoy as many years of retirement as possible and are willing to compromise their spending during this time. Most people, however, have a certain lifestyle in mind for retirement and are flexible about the age at which they retire.

Superannuation combined with Age Pension is often the best solution for those who want to maximize the number of years they can retire. Age pensions start at 67. Someone with this priority may want to retire early in their 60s and live off of superannuation or other savings, until age pensions begin. Then, they can add some super income to their age pension to have a comfortable retirement. This plan is very realistic, especially if you reside in a regional center. This plan assumes that you own your house and have paid off your mortgage. However, you may receive rent assistance if you are on a pension.

It is more common to see someone envisioning a particular quality of retirement life. We then try to quantify that in terms of income needed. This is our goal, and we can then explore what age retirement might be possible.

It’s good to know that working an extra few years can make a big difference. At this stage of your life, you have a superannuation account that is nearing its maximum. A few more years can make a big difference. By working for a few more years, you will also be able to contribute extra money to your super. Perhaps your mortgage is paid off, and you can save even further, inside or outside super. Working a few more years means that you will have less time to fund your superannuation. If you retire at 60, your superannuation may need to support you for the next 30 years. If you work until 65 instead, your super will only need to provide you with income for 25 years. This means that you can afford more each year.

We often discuss with our clients whether the initial goal of their retirement income should continue through their retirement. In the early retirement years, many people have ambitious travel plans and other goals. However, once they reach their 70s or 80s, spending is likely to slow down. This can help you create an affordable retirement plan. You might have started by deciding that you would retire with an annual income of $100,000. If this seemed unaffordable, a possible solution would be to only spend $100,000 per year for the first five of your retirement. After that, the amount spent drops to $70,000. The way you think about retirement can make a big difference.

Many of the people who come to me, worried about being financially secure, have been through a divorce. The assets are now split between two households instead of just one. This can make it feel like you’ve taken a step backward on the wealth ladder.

In this situation, I believe that people have an advantage. They can now focus solely on their goals without compromising. They have complete control over their future. You can rejoice if you are in this situation. You will only be spending on the things that matter to you. Sometimes, even the timing of retirement can be a compromise between a couple. The younger member of a married couple is often under pressure to quit work once the older partner has retired, even though the older person would have happily continued to work.

You are not alone if you feel you are falling behind in your life stage. In fact, the mere fact that you worry about it suggests that you may be ahead of many others. Here are your primary levers:

• Work longer. This is the best option.
• After the first five to ten years, you may need to adjust your retirement income requirements.
• Downsize your house. Downsizing your home is a great way to boost super.
• Home equity release is a great way to keep your house while still having the capital you need to live.
• Make sure your superannuation works as hard as it can. Some people, worried that they have left it too late to accumulate wealth, believe they must be extremely conservative with their investment allocations because they cannot afford to lose money. While more growth-oriented investments are volatile, the higher returns will extend your savings life. Too much conservatism can be counterproductive.
• Use any extra income. You could pay off your mortgage or invest elsewhere, or you can sacrifice some of your salary to the super. Don’t let it sit in the bank, earning nothing.
• Don’t forget about the Age Pension. You may not qualify at first, but once you have used up all your retirement savings, you will most likely meet the criteria. You can then replace your pension with your savings, and your savings will last much longer. Your retirement savings may last longer than expected.

You can only build wealth and achieve financial independence during your earning years. It’s never too early to improve your financial situation and gain more flexibility in life, as long as you still have years of work ahead.