There are very different kind of challenges when we are at our early
40s, and approaching the mid-point of our career. We would have already worked
for about fifteen-twenty years, and may have about 15-20 years left for the
retirement. This stage of our life is very important both from a career and
financial planning perspective for the following reasons:-
i. This is the stage
of life, when we are more likely to be settled both from a career and family point
of view. The lifestyle, we are living in our forties, is most likely what we want
to have for the rest of the life. We might aspire for more improvement in our
life, but a cutback in lifestyle is usually very difficult for us.
ii. By the time we are
in early 40s, most likely we may be in middle management or senior management
role. Therefore our income is likely to be much higher than the earlier stages
of the career. With higher disposable incomes we are better placed to save
more.
iii. Early 40s is the
stage of life, when important goals of life like children’s college education,
marriage and own retirement starts approaching. We would be comfortable enough
if we have been saving for these goals since beginning of our career. However,
if we have not saved adequately then this would be a very challenging time to
manage various major expenses and also for future requirements.
iv. This is the time,
when the first warning signs come up on the health front. Now days health risks
in the 40s are much higher than what it use to be one or two generations back.
This is mainly due to environment pollution and lifestyle related issues. A
serious illness can cause severe financial stress to the family and we must
guard ourselves against health related financial risks.
v. Now people have
much more mobility in their careers as compared to what we generally had a
generation back. However still the increasing age of the family does impose
constraints on mobility. By this time the family is settled at a particular
place and our children may be in the middle or high school, which makes relocating
to new city for work, undesirable. BY this time we may have invested in
property and that also restricts geographical mobility. Unless we get a very
attractive career option we may not like to move and if we don’t get better
opportunities in same place it puts constraints on career growth. Inability to
find career growth opportunities may also led us to think for early retirement.
Which need to be factored in for financial planning.
These are the reasons
which makes it imperative that, we should have some proper financial planning when
we reach the mid-point of our career at this age. In this post we will discuss
6 important mid-career financial planning to-dos.
1. Health cover for difficulat times
Health is the most important aspect of life and at this age it is most
critical for maintaining it. So proper health cover is very important at this
age of life. We should have comprehensive health insurance
cover for entire family and if we are responsible for the healthcare needs of your
senior citizen parents, then I should also be properly covered. Even the
government promotes it and gives up to Rs. 55,000 (30000 for senior citizen
parents and 25000 for self and family) tax benefits for health insurance policy
u/s 80 D for family and parents.
If our employer is providing health insurance benefit then it should
be checked for its benefits like sum
insured, co-pay terms and exclusions so
as to evaluate whether it provides comprehensive coverage as required. Even if
the employers insurance provides everything its better to take separate mediclaim
for family so for any reason if we have to leave the organisation and could not
find a suitable opportunity immediately; in that time also our family is
properly covered for any unfortunate serious illness during that time.
2. Take adequate Insurance for eventualities not just to save tax
We should have adequate life insurance cover which is able to meet the
income needs of our family in the event of an untimely death. It should also be
able to meet the future aspirations of your family, like children’s education
and marriage.
We should not take life insurance as a savings scheme for children’s
future or retirement with the expectation of certain maturity amount as
promised but it should suffice the basic purpose of covering the risk of
untimely death. Treating life insurance primarily as a Section 80C tax saving
investment is a basic mistake, which many of us make.
Main purpose of life insurance is for risk protection. If we take life
insurance policies as savings or investment schemes, It causes us to be
under-insured and gives us sub-optimal returns on investment. The early 40s is
a good time to review your life insurance needs. As discussed earlier in the
post, this is the stage of life, when you are more settled from a lifestyle
perspective. A life insurance cover bought when you were younger and had lower
income, may not be sufficient to sustain the current lifestyle needs of your
family.
If we find out that we need additional cover to meet our family’s
lifestyle needs, buy additional term life cover. Also, if you made some of the
other life insurance mistakes discussed here, we can correct it. by
surrendering the policies, buy term life insurance and invest the savings in
premium in suitable investment options to meet your financial goals. At this time,
we can consider buying a critical illness and personal accident covers.
Critical illnesses and severe accidents, can result in very high medical
expenses, which may not able to get reimbursed through your general mediclaim policy.
Further, critical illnesses and temporary or permanent disability caused by
accidents can impair our ability to work, resulting in a loss of income for the
family over a protracted period of time. Critical illness and personal accident
covers, protects against such serious financial risks.
3. Children’s Higher Education: A major Expense
Historically Inflation rates are highest in the education and healthcare
sectors. Every parent’s dream that their children get best of the education
however it is becoming expensive day by day. Therefore is it very important to
start saving early for this major financial goal.
If for whatever reason, we have not saved till now for your children’s
education and marriage, we should now start planning for these important
objectives. How much we need to save and where to invest, will depend on personal
situation i.e age of children, family’s aspirations, our income and savings and
assets & liabilities, etc. We should consult with a financial planner to build
a suitable financial action plan in this regard.
For this purpose we may be required to invest in those asset class which
can beat inflation over a longer period of time; equities and equity mutual
funds are best placed in the current scenario where the interest rates are
falling down.
4. Retirement Planning : Had we considered yet??
Generally we get involved so much to our short term goals that we forget
that after certain age we would stop working and in our country we do not have
any social security available for the old peoples. The cost of living goes up due
to inflation and if we do not plan our retirement needs in advance it would be
very difficult to manage the expenses at that time. As we go through various
stages of life, the goal post of retirement planning may keep shifting. By the
time we are in 40s, we have more clarity about long term aspirations, than in our
20s or 30s. The important factors to consider at this stage are, what would be
lifestyle related expenses, how much income is required to sustain inflation
adjusted lifestyle expenses, can we think of some alternate source of income after
retirement or do we wish to retire early etc. Accordingly we need to develop a
suitable retirement plan so as to meet these requirements.
The earlier we start planning for our retirement, the easier it will be
to achieve the required target. If we are unable to save and invest for our
retirement till now, or even if did some saving but is not sufficiently large then
this is time when we must have a retirement plan in place.
The 40s is not just middle of our
work life but also of our entire life (generally our average life expectancy is
around 80) and it is very important from a personal and professional
perspective. At this age we are quite mature and independent. This period in
life is prime of our working careers as well as extremely important from a
financial planning perspective. At this age, we have more clarity into our aspirations,
needs for self & family and challenges we have to face. So it’s very
important to take right financial steps at this critical stage of life which
can make or break our financial health.
No comments:
Post a Comment