Financial Needs to Consider in Your 40s and 50s

As you go through life’s different stages your financial needs change.  In your 20s and 30s you will be mostly concerned with addressing needs related to starting and building a family – a wedding fund, building your own home, stuff for the house, a new car, and your children’s college education fund.     As you enter the midlife stage focus shifts to more long-term needs.  Here are the most important financial needs you have to prepare for when you are middle-aged.

Retirement Fund

Preparing for your retirement is supposed to start as soon as you you land your first job.  If you have not given your retirement any serious thought and you are already in your 40s or way past it, you really need to begin your preparation now!  The longer you wait the more difficult it will be for you to secure your retirement.

Statistics show that 90% of seniors today are living poorly or just meeting basic needs.  Just 1 out of 10 is living comfortably in retirement.  The main reason why a vast majority of Filipinos are not fully enjoying their golden years is their failure to plan well for their retirement. 

To sustain your current standard of living into the future you will have to spend a lot more because of rising costs.  If you are spending P30,000 today and plan to retire in 20 years then you will need more than P65,000 monthly to maintain your present lifestyle (assuming prices increases 4% every year).  If you live for another 15 years in retirement you will need about P12 Million to cover P65,000 in monthly expenses.  Where will you get this amount if you do not save for it now? 

The retirement lump sum you get from your company may not be enough.  And you simply cannot rely on your SSS pension.  The maximum pension you will get will be less than P14,000 a month but most retirees will only get about half this amount or even lower.   Also, don’t be a burden to your children by using them as your retirement plan.  It’s not right to obligate them to support you in old age.  It is your responsibility, not theirs.

Retirement is a time of relaxation and leisure, frequent travel and recreation, exploration and adventure.  Your ability to live such a life in retirement will largely depend on how well you prepare for it.  So start planning now while it’s still many years away.   Among the questions that you need to answer when you are preparing for retirement are as follows:

1. How much retirement fund do you need to be able to retire in comfort?  Where will it come from?

2. How much do you need to save from now until you retire to accumulate the required fund?

3. How and where will you invest the funds intended for retirement?

(Send us a message to learn how to answer these questions.)

Income Protection

As long as you have dependents (e.g. your spouse, children, and parents) who will suffer financially if something happens to you, you should get protection for your income.  The family you leave behind when you die will continue to face tough financial challenges which will be more difficult to bear with the reduced family income.  

Among the needs your family has to address are their day-to-day living expenses, your kids’ education, mortgage payments, emergency fund and fund for recreation (surely, you still want them to enjoy life after you’re gone). 

An income protection plan or life insurance will provide your loved ones with adequate financial resources to cover their needs after your demise.   It will also help them settle final expenses related to your death which can include funeral expenses, medical bills, debt payments and estate taxes.   Your family can also use some of the proceeds to start a business that will provide them with continuing income.

It’s tough losing a loved one.  Don’t make it any tougher on your family by failing to get financial protection.   A life insurance policy is the best gift you can give your loved ones.  It is one of the greatest expressions of your love because it will allow you to continue to take care of their needs even when you are no longer around. 

Estate Taxes

Through the years you have likely accumulated a lot of assets which include real properties, personal properties, savings and investments, among others.  These assets comprise your estate and you need to prepare for its eventual transfer to your legal heirs when you die.  Failure to prepare can be costly and your heirs could lose everything that you have worked hard for.   

Estate taxes can cost a lot of money and will amount to millions if you have substantial wealth.  If your estate is worth P10 Million, the corresponding estate tax will be P1.2 Million.   If your estate is valued at P15 Million, the estate tax will be P2.2 Million.  Costly, isn’t it?

You’re probably wondering why your family needs to have, say P1.2 Million, to settle the tax on your P10 Million estate.  Why not just get it from whatever assets you own?  Now, there’s the problem.  Legally, your surviving family cannot get their hands on any savings, investments and shares of stocks under your name unless the estate tax is settled.  Even access to a joint account is restricted.

Transfer of your estate will prove to be difficult if there is no money immediately available to settle the tax which is supposed to be paid within six months after death (extensions are common though).  This is where a life insurance policy becomes very useful.  Upon your death it immediately provides your beneficiaries with much needed funds they can use to settle the estate tax.  In addition, proceeds from a life insurance policy are excluded in the computation of your gross estate, which means it is exempt from estate taxes, provided the beneficiary or beneficiaries are designated “irrevocable.”  Not only will your family have money available immediately but they also get to save on estate taxes.

Inheritance Money

In addition to preparing for the smooth transfer of your estate you may also consider preparing a plan that will accumulate funds you can give as inheritance money to your children.  You can distribute this money to your children when you reach a certain age; you don’t have to wait until you’re near death. 

One big advantage of giving cash over properties is that your children will have more options on what to do with their inheritance.  It can also help them get started with saving and investing, the main ingredients in achieving a bright and secure financial future.

 This article is written by Mr. Alvin Tabanag and published here with prior permission from the Author. Mr. Tabanag is the author of the best selling book 12 Steps to Build Wealth on Any Income. He is the founder of Pinoy Smart Savers.