4 important financial decisions to make in your 40s

Entering your 40s can come with plenty of financial responsibilities. For many, your 40s is when your careers peak and you will be in your peak earning years. What this also means is that how you choose to spend, save and invest your money in your 40s will be critical for your future financial well-being.

In this article, we will look at four important financial decisions that you need to make in your 40s. Of course, this isn’t to say that you shouldn’t start planning for them even in your 20s or 30s. However, once you reach your 40s, these decisions become more critical.

At this age, you should already have bought various health and life insurance plans to cover for yourself and your family. These should include hospitalisation plans, term or whole life insurance policies as well as critical illness policies and investment-linked plans (ILPs).

It’s never a bad idea to arrange for a sit-down with your financial adviser to periodically review your financial needs. This helps you quickly identify any insurance coverage gaps you may have, and the right insurance policies that you can get in order to close the insurance gap.

Your 40s is an important age to review your insurance protection needs for various reasons. Firstly, while being at the peak of your career is great, it also means that your family, including your kids and elderly parents, are highly dependent on the income that you bring in. You may also have made investments in areas such as real estate, which may carry heavy debt, which means you need to make plans for how these investments would continue to be funded if you are no longer around.

At the same time, medical protection becomes even more crucial for you. Like it or not, your health is likely to decline as you age. Ensuring you have the right hospitalisation plan, personal accident plan and critical illness plan will help limit your, and your family’s, financial downside in the event of any unexpected illnesses or accidents. 

While you may procrastinate on retirement planning when you are in your 20s and 30s, you cannot afford to do so in your 40s.

With the official retirement age currently at 62 in Singapore, and the re-employment age up till 67, you only have about two decades left to work and grow your retirement savings.

A good way to get started is to calculate how much you foresee yourself spending each month during your retirement. This can be based on your current lifestyle, accounting for inflation, but subtracting any debt you are currently servicing or support for your children as these cash outflows may not be relevant for you once you retire.

As Singapore’s default life annuity scheme, CPF LIFE will provide Singaporeans and Permanent Residents with a monthly payout for as long as you live. Your monthly payout can commence from age 65, though there is an option for CPF members to defer the payout till age 70 to increase your payouts each month.

To help you determine if your retirement goals can be achieved, you can use the CPF Retirement Calculator which calculates for you the savings that you need based on your desired retirement age.

Your late 20s and 30s are likely to be an age where you take on multiple loans. In your 40s, loan repayments should be on your priority list. You do not want to be approaching retirement while still having to worry about heavy loans you owe.

This could include your HDB housing loan mortgage, your car loan and even other types of loans such as business or personal loans. Start by clearing your high-interest loans first as they would cost you the most if left unpaid.

With retirement about 20 years away, your 40s is an age where you should consider buying a retirement plan for yourself. These retirement savings plans provide you with an additional layer of retirement income, on top of what you can expect to receive from CPF LIFE. Most of these plans are also more flexible compared to CPF LIFE, and can be tailored according to your individual retirement needs.

For example, the AIA Retirement Saver (III) is one such retirement plan that you can consider buying. Aside from providing a guaranteed monthly income for 15 years, policyholders can also choose other ages (55, 60, 65, 70) when they wish to start receiving their payout. This also allows you to consider early retirement, from 55, if you wish to opt for it.

The best part about retirement savings plans such as the AIA Retirement Saver (III) is that it pays to buy these plans early. This is because the earlier you buy and start contributing to your retirement plan, the longer your contributed funds have to compound its investment returns, translating into a higher payout once you start your withdrawals.

Being in your 40s means being financially responsible for both yourself and your family. You can do so today by considering the four important decisions highlighted above. By making the right financial decisions early, you would give your future-self the greatest chance of being able to enjoy a comfortable retirement.