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Smart money moves to make in your 40’s

Table of Contents
Your forties 1. Re-evaluate your insurance needs 2. Focus on retirement 3. Plan for when you’re gone 4. Discuss money with your parents 5. Save for your child’s education (but prioritize retirement) 6. Stick to your plan

The forties are a turning point for most Canadians. You’re roughly halfway between entering the workforce and the average age of retirement, so how you invest and save for retirement can strongly impact your financial stability . So what should you consider to help you build wealth?

Here at Planswell, many of our clients ask us: “What should I be doing with my money right now?” It’s an excellent question, and it’s important to remember that every financial situation is unique.

We’ve organized a series of advice that can help you make the smartest money moves throughout your life, that Future You will seriously be thankful for.

Keep in mind that although the advice is organized by decade – money management is about where you are going, not where you are at the current moment in time. Don’t panic if you and your money experiences don’t exactly fit on this timeline.

Not in your forties yet? Check out our other blog posts by decade:



Your forties

Now that you’re in your forties, you’ve likely built up some serious momentum. You’ve made it through your early working years and hopefully have reached a level in your career where you genuinely enjoy the work you’re doing. You may own your home, have likely found your stride in your career (and, if applicable, in parenthood) and can begin to see your retirement on the horizon.

So how can you harness that momentum and make the most of your money in your forties? Here are some money moves you should consider making in this decade of your life so you can sail smoothly into retirement.


1. Re-evaluate your insurance needs

If we asked you what your most valuable asset was, what would your answer be? Your house? Retirement savings? This is common wisdom, but the real answer is: no and no. Since you entered the workforce, your most valuable asset is yourself and your power to earn an income.

Like any asset, you are worth protecting. When it comes to life, that means insurance. Do you have adequate insurance coverage to protect yourself and your loved ones? If you purchased a policy a decade or more ago and left it on auto-pilot, you should review it to ensure that it still meets your needs.

Your forties are a good time to check the fine print of your policies and make sure that they still are offering you the right coverage. You should also consider any additional types of insurance you may need.


Critical Illness Insurance

In this decade of your life, critical illness could cause losses amounting to tens of thousands of dollars, an amount that would severely impact your current and future lifestyle. What would happen to the investments you’ve spent years building up if you had to cover the costs of getting sick?

Critical illness insurance pays you a tax-free lump sum if you are diagnosed with some of the most common acute illnesses, such as cancer, heart attack and stroke.

You can use the money to make your recovery easier and your life better, such as paying for drugs, treatment south of the border, making your home more accessible or covering time off work for you or someone who cares for you.


Disability Insurance

If you’re currently working and earning an income, disability insurance should be on your radar.

Disability insurance is a fundamental building block of a solid financial plan. If you’re like the majority of the Canadian population, you likely depend on your paycheque to pay the bills – but if something unexpected happens, you’ll need something to fall back on. Disability insurance is designed to help you when you lose the ability to earn an income due to illness or injury.

In most cases, disability insurance means you’re  eligible to receive up to 65% of your pre-tax salary each month right up until age 65. Check your specific policy for more details, though.


Term Life Insurance

There are two basic life insurance options: permanent and term. While permanent lasts your entire life, term lasts for a specific, pre-set time period.

If you have people in your life who depend on you financially, such as a spouse, child, or even parents, you need a safety net in case something goes wrong. Term life insurance can cover this burden entirely so you – and your family – don’t have to.

With term life insurance, you name a beneficiary or beneficiaries, and they receive a tax-free death benefit if you pass away. The amount of the benefit should be enough to help them remain in their home, cover their living expenses, and stay on track for financial security during a challenging time.


2. Focus on retirement

It’s a good idea to re-evaluate your retirement savings consistently over time. Your forties are a great time to make any necessary adjustments to your plan so you can get as much bang for your stashed-away bucks as possible.

As your salary rises with stability or growth in your career, make sure that you’re bumping up your contributions as well. The closer you get to retirement age, the harder you should be trying to max out your different retirement saving accounts.


Registered Retirement Savings Plan (RRSP)

An RRSP allows your savings for retirement to grow tax-free. These plans are a vital part of most Canadians’ retirement planning mainly because of the tax advantages they offer.

The total amount that you can annually contribute to your RRSP depends on a percentage of your income – 18% in 2019, for example, to a maximum of $26,500. If you don’t contribute the maximum in any given year, the remaining balance is carried forward so you can put more in the future. Canada Revenue Agency (CRA) allows you to carry forward any unused contribution room indefinitely and add this to the amount you can contribute in future years.


Tax-Free Savings Account (TFSA)

In 2009, the Canadian government introduced the Tax-Free Savings Account (TFSA) to help Canadians save their money. A TFSA allows you to earn tax-free income on money you put in the account while watching your savings grow tax-free throughout your lifetime.

The title “Savings Account” is widely considered to be inaccurate, though, because your TFSA doesn’t have to be (and shouldn’t necessarily be) a savings account. A better description would be “Investment Account”, as you can hold a variety of investments such as ETFs, stocks and bonds in your TFSA.

With the TFSA limit at $6,000 for next year, the total room available in 2019 for someone who has never contributed and has been eligible for the TFSA since its introduction in 2009 is $63,500. Like an RRSP, any contribution amount not made to the TFSA during a year can be carried forward indefinitely.


3. Plan for when you’re gone

It may not be what you want to think about, but in your forties, you should begin to consider what will happen to your assets when you die. A good first step is having a will in place which outlines your financial wishes should something happen to you.

You’ve spent the past 20-plus years building financial security for yourself and your loved ones, but it’s just as important to plan and provide that financial security after you’re gone. If you’re a parent with young children, it’s crucial that you designate legal guardians in your will as well. Decide who you’d want those people to be, and have a discussion with them ensuring they’re ready for the responsibility.


4. Discuss money with your parents

As you inch towards retirement, it’s likely that your parents are ready to take that step or perhaps have already done so. If you haven’t yet had the what are your money plans in retirement conversation with your parents yet, now is the time. There is a good chance that their plans will intersect with yours in some way.

Many adults end up providing financial support for their parents. Even if they don’t need your help, you should brace yourself for some surprises. Perhaps they’re planning to sell your childhood home that you thought you might inherit. Maybe they’re planning to move somewhere warm and expensive to travel to, meaning you need to incorporate holiday visits into your budget. It’s beneficial for all parties to get out these details now so you can plan accordingly.

Useful information that you should find out: 

  • Is their house paid off and do they have any other debt? 
  • What are their plans for long-term care? 
  • Do they have life insurance? 
  • Where do they keep the documentation for all these items?


5. Save for your child’s education (but prioritize retirement)

It would be ideal if you could have both a healthy retirement fund and a well padded Registered Education Savings Plan (RESP) for your child’s post-secondary education. Unfortunately, that’s not always possible. In the case that you can’t fund both, prioritize your retirement. The reality of the situation is that your children can finance their education, but you can’t finance your retirement.

If this applies to you, make sure that you’re upfront with your children about education savings. They may need to choose their school according to scholarships and loans, especially if you cannot provide any financial assistance. While this may limit some of their school choices, they will have their working lives to build their success (besides, success is not that strongly tied to where people went to university or college).


6. Stick to your plan

If you’re meeting all of your financial goals concerning saving for retirement, protecting your assets and taking care of your family in case something happens to you, keep doing what you’re doing. Your forties can be the best years of your life yet. You’ve found your financial groove, and your life is hopefully more stable. You can expect changes, but you should be set to make the best of them if you stick to your financial plan.

Are you confident with your plan for your future? If not, you still have time to get on the path toward a secure financial future with Planswell. Get started by building your financial plan today.


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