For most people, their 40s is when pay cheques climb and debt tumbles, creating some welcome financial breathing room. However, there are plenty of big-ticket items that women must deal with a mid-life, including saving for their kids’ educations and paying down their mortgages. For single women of a certain age, costs can either be greater or smaller, depending who you ask: In Chatelaine’s recent survey of Canadian women, 69 percent said they believe women are financially penalized for being single, but 30 percent say being single actually saves on certain costs. Whatever your relationship status, here are five financial priorities you can tackle now to ensure you’re rich in your 50s.
1. Tackle your debt
“By [your 40s] you’re hopefully getting toward the end of your mortgage,” says Dan Hallett, director of asset management for HighView Financial Group. “More of the payments are now going to the principal, and you’re less sensitive to those payments.” So if you’re on track with a reasonable plan, don’t feel pressured to divert cash flow away from money you’ve been setting aside for your nest egg. “That way, you have a balance between finishing your mortgage and saving for retirement,” says Calgary-based money coach Tom Feigs.
But if you can take a few years off the mortgage by increasing payments and still put away something for your golden years, by all means go for it. Only those contending with big mortgages need to make crushing that debt their No. 1 priority. Your 50s should be focused on saving for retirement and you don’t want anything competing with that.
2. Resist upsizing your home
On track with your mortgage? Now’s not the time to get house lust and buy a bigger home. “You may feel like you deserve it, but ask yourself, ‘Is that reasonable?’ It’s a trap if you’re not looking further into the future,” says Hallett. Keeping up with bigger house payments could cause you to lose focus on all your other goals — and you may never catch up. Bottom line: Match your home to your needs, and not your status.
3. Revisit your financial plan
As you get through your 40s, a clearer retirement picture starts to form. So now’s the time to get a better feel for what you want to be doing in your post-working years, and how much that’s going to cost. In order to do that, you’ll need to update your financial plan and make readjustments if necessary. “A good plan will help you stay accountable and reinforce positive behaviour,” says Karin Mizgala, co-founder and CEO of Money Coaches Canada. “You don’t want to come up short.” Pay close attention to fees, regardless of what type of investments you’re using—high management fees can drain your portfolio.
4. Don’t stress about retirement savings
If your sole focus until now has been tackling debt and paying for the kids, don’t worry if you haven’t started saving for retirement yet. “It’s never too late,” says Hallett. With a 20-year time horizon and freed up cash flow, you’re still in great shape to meet any financial goals—provided you’re organized and aren’t frittering away your disposable income. Don’t forget to account for future government benefits like CPP and Old Age Security, either. “When you look at how much capital you need to build up to produce $1 of retirement income for the rest of your life, many people are really thankful to get $17,000 in government pensions that are fully indexed,” says Hallett.
5. Time to choose: RRSP or TFSA
Deciding whether to prioritize saving for retirement in an RRSP or TFSA typically boils down to a question of income — what you’re earning now, and how much income you’ll be claiming in your post-working years. For anyone earning in excess of $50,000 a year, the RRSP is usually the better choice.
While both RRSPs and TFSAs allow your investments to grow tax-free, the RRSP’s tax refund makes it more attractive for high income earners. You can contribute up to 18% of your previous year’s income — to a maximum of $24,930 for the 2015 tax year — and deduct that amount from your current income. You’ll eventually have to pay taxes on RRSP withdrawals in retirement, but because most people will earn less income in their post-working years, you’ll be taxed at a lower rate. TFSAs, on the other hand, earn no up-front tax refund, meaning the government won’t get a dime of your money when funds are withdrawn in retirement. For people earning less than $50,000 (and certainly less than $35,000) the TFSA is more desirable because it won’t cause any clawback of government benefits.