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Twenty, Twenty, Forty

An article by Glenn Baker, Principal Financial Planner at Adept Financial Planning

What is Twenty, Twenty, Forty? Quite simply, it is one of the most important ratios for all people who aspire to attain financial security, and a ratio that many do not start seriously thinking about until they are 5 out from the Forty!

Ok, enough with the ambiguity. Twenty, Twenty, Forty represents our years (God willing) of adult life and how it is the second Twenty that is so important.

The First ‘Twenty’

This represents our first two decades of our adult life, from the age 20 until 40. During this time, generally speaking (although we acknowledge it is not true for all), we are focused on getting or finishing our education or trade, finding our life partner, buying our family home, and perhaps starting a family. In short, little wealth creation happens, or is even possible, during this period for the majority of people. Often it is a period of indebtedness (a mortgage to buy that home), and apart from superannuation, our finances are often stretched as we use our income that is not yet at its peak to finance this beginning. It is more a time of setting up foundations and putting down some roots.

The Second ‘Twenty’

This is the most important ‘Twenty’ from a financial perspective. By age 40, hopefully our career is well established, and our income is hitting better numbers. Any children that may exist are a little older, and whilst still a financial expense, the skies are starting to clear. Our mortgage, if it is still in place, will hopefully be significantly lower than what it has been. It is just as well that the financial position should be improved, as it is in these two short decades that we need to build sufficient wealth to be able to finance the next 40 years!

You may be thinking “this is why I have superannuation”. Well….yes and no. If you are planning on relying on your super to finance your retirement, you have placed a great deal of control into the Government’s hands. As we have seen in recent weeks, the goal posts can easily shift and rules change with regard to super, and one thing that has proven true across all political colours, they just cannot resist tinkering with the superannuation. As an example, the Preservation Age to access super used to be 55, now it is 60. What will it be by the time you hit retirement…65, 67, 70?!

Furthermore, whilst neither side of politics has flagged this as such, I think it may be a reasonable expectation that in the future, the rules on superannuation Pensions may be adjusted to restrict (or not allow) lump sum withdrawals, to prevent people retiring and living large for a few years, and then going onto Age Pension due to their reduced financial position.

If you do not want to be at the mercy of the Government telling you when you can retire (ie. When you can access your super), building wealth outside of super is also crucial. Furthermore, at a contribution rate of 10.5%, this super may not end up being sufficient to finance the quality of life you aspire to in retirement, particularly if leaving a legacy is important.

The ‘Forty’

How much money do I need to retire to reach the standard of living I would like? Will my money run out, and if so, when? These are perhaps the most common questions I am asked as a Financial Planner. You could complete an online calculator with some super funds which may take 5-10 minutes, or you could do something more useful with your time as the output is not exactly precise (garbage in, garbage out, as they say)! Your answer to this question is highly dependent on you as an individual. For example, your personal circumstances, your dreams and aspirations, any legacy that you may wish to leave behind, etc etc. For a more detailed overview of this, please read my article entitled ‘How Much Super Do I Need to Retire? Determining your Golden Number’. Specific modelling, advice, investment and planning is required to evaluate and work toward reaching the required wealth.

Failing to Plan is Planning to Fail

There is a saying that I particularly like, “the harder you work, the luckier you are”. I believe the same sentiment applies to someone who has a deliberate financial plan in place, “the more you plan, the luckier you are in retirement”. If you are in your ‘Second Twenty’, and want to be proactive by putting in place action items to help ensure you are ‘lucky’, then please make contact with us to see if there is a way that we can help you achieve your dreams. If you are in ‘The Forty’, and wish that you could go back in time to the ‘Second Twenty’, do not lose heart. We stand ready to provide any assistance possible to help improve your situation.

The ‘Second Twenty Club’

If you are in the second ‘Twenty’ and want to take decisive steps towards reaching your long-term dreams of financial security and independence, please make contact about joining our ‘Second Twenty Club’. This is an exclusive service offering specifically designed for people in this stage of life. Spaces are strictly limited, and minimum eligibility requirements apply.

About the Author

Glenn Baker is a Senior Financial Planner, and Principal of Adept Financial Planning Pty Ltd, a Corporate Authorised Representative of the Capstone Financial Planning Pty Ltd,

AFSL 223135 ABN 24 093 733 969.

Information contained in this article is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors, employees or authorised representatives gives any representation or warranty as to the reliability, accuracy or completeness of the information; or accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.


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