There are times in our lives that we are faced with crucial decisions that can influence the rest of our lives. This is usually related to relationships, careers etc. But I’m talking about financial decisions. And based on various stages in our lives, we are faced with financial decisions that often cause stress and overwhelm depending on our level of understanding and preparedness.
The Midlife (Financial) Crisis is really a period of time between the ages of 40-60 years when someone faces intense financial stress or instability. It’s often triggered by major life transitions or realisations. We’re at a crossroad, needing to make good financial decisions while also juggling aging parents, children going to university and pending retirement.
People deal with this differently based on their experience, education and the noise around them like finfluencers and media. The important thing is to recognise the signs of the midlife financial crisis, and seek help.
The Early Years: Surviving, Not Thriving
In our early years, we don’t tend to know a lot about money. We earn very little in wages and typically start building debt by purchasing cars and our first home. Then we add the expenses of that new home, as well as the costs of raising families. It’s understandable that financial planning isn’t top of mind during this time.
The Midlife Years
It doesn’t tend to be until our 40s or 50s that we see a shift where debt has reduced significantly and we may have good disposable income. There’s still likely to be some financial stress but perhaps more flexibility in how you prioritise your goals and needs.
Unfortunately, the normal midlife crisis that everyone already knows about, can coincide during that time, and hello new sports car? Or tattoos, or taking up riding a motorcycle! But how do ensure that our sudden need for fulfilment via new sports cars, is not detrimental to our future years. Because there is, in fact, a risk.
The Retirement Years
By age 60, the majority of us are thinking about retirement. It’s been a long journey and we’re tired! But when and how we achieve retirement, and what retirement looks like as far as not just covering living expenses, but also the fun things like holidays, is all in the planning.
The Stats: Retirement Preparedness
The 2024 Industry Trend Report shows retirement confidence has dropped to a 10-year low. Nearly half, so 47%, of pre-retirees feel unprepared. The cost of living is up, and the gap between expected retirement income and actual needs is widening.
In addition to this, the ASFA’s 2024 Retirement Standard says a comfortable retirement costs $52,383 a year for singles, and $73,875 for couples. That assumes you’ve got $585,000 to $690,000 in retirement savings. Yet, I see many couples requiring much more than this (say $80-$90,000 p.a.) just to cover their standard lifestyle needs, let alone those fun holidays mentioned earlier. That’s a big gap in lifestyle!
So, the stats are showing that there is good reason we are feeling unprepared for retirement, because we probably are! No wonder the Midlife Financial Crisis exists. Because that critical point in life where we have the opportunity to prepare for our next stage, is hindered by confusion and conflicting priorities. Ideally, we want to be able to enjoy life but having the sports car AND being and feeling fully prepared for the next stage of our life.
How to Avoid the Midlife (Financial) Crisis
Well just like any type of issue, we first need to recognise it. If there’s been a change in circumstances for you, you’re feeling overwhelmed, and you feel like you’re running out of time to live a life of true wealth, perhaps it’s time to take action.
The ideal solution is to seek financial advice to get clarity on your situation and build confidence knowing you’re on the right track. When 9 out of 10 clients who work with a financial adviser feel financially secure and feel more prepared, it’s hard to argue this one. However, next in line would be to contact your super funds, your accountants etc., lean on professionals that have the education and expertise needed to help you out. Take an active approach to your finances and check in on them from time to time.
The biggest takeout is to take control of your finances as early as possible. Even if you feel as though you have no room to move, the clarity is all it takes to avoid the stress of the crossroads you may come to moving through life, and provide a higher probability of living a life of true wealth.
Ashleigh Thompson (BBus(FinPlan)) is a representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.