How to get started investing later in life

For some people – particularly women – investing may not have been an option until now, constrained by a lack of income while raising children or low incomes leaving nothing to invest once the bills were paid.

Others find a new-found need to invest later in life, such as after a separation, inability to work through illness or injury, or the sudden death of their partner.

No matter your reason for exploring investing later in life, the following pointers will get you on your way to building financial independence and a comfortable retirement.

Update your strategy

When was the last time you updated your spending and investment plan (or household budget)? It may have been before the kids left home, your mortgage was paid off, or you began transitioning into part-time retirement. 

If so, your living costs have changed significantly – work expenses, home energy consumption, groceries etc. Furthermore, your goals, healthcare and lifestyle needs may also have changed.

Update your strategy to align with your current goals, values, income and spending habits. Only then will you understand how much you can afford to invest and where to direct those funds.

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Right-size your superannuation

In your later years, super is likely to be front of mind. Ensure this investment works its hardest for you by scrutinising its:

• Structure: retail or industry fund? SMSF? Each has its own costs and benefits to contemplate.

• Investments: reexamine the types of assets held, level of diversification and risk weighting.

• Insurances: do you have adequate life, permanent disability and income protection cover? 

• Take advantage of superannuation strategies you may not be aware of

Unlock home equity

The biggest source of money you likely have at this stage of life is equity in your home. 

This can be used to invest with minimal impact on your everyday finances. In fact, unused equity is effectively dead money (until you sell the property).

I always urge caution on reverse mortgages. In theory, they seem like a great way of unlocking equity without saddling you with regular repayments. However, they typically:

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• accumulate more debt.

• have higher interest rates than standard mortgages.

• only grant access to a portion of your equity.

• can restrict your options to downsize later.

• could leave you with no remaining equity when you sell the property or nothing to leave to your benefactors when you pass away.

Consider downsizing

An alternative to refinancing is downsizing from the family home. 

As well as unlocking money for investing, you benefit from lower upkeep costs (and cleaning!) on a smaller property and can make a lifestyle change at the same time (moving nearer to family, away from bustling cities, or into supported care if required).

Additionally, you may be able to use part of the sale proceeds (up to $300,000) to turbocharge your super with a one-off downsizer contribution.

Examine pension impacts

Investing can impact your ability to claim the age pension when you retire, and how much you receive. 

This often comes to bite people who unlock equity in their home to invest, without realising that doing so means the money suddenly counts towards the pension means test.

Before doing anything, methodically weigh up which will leave you financially better off – claiming a full or part pension, or self-funding your retirement through investments.

Minimise tax

Hefty tax bills can easily wipe out any investment returns, making tax a crucial factor in your decision-making.

Potential tax considerations to factor into your strategy include:

• Determining the most tax-effective ownership structure (e.g. do you invest in your or partner’s name? Through your super? Through a trust or company?

• Incorporating stamp duty into purchase costs.

• Ensuring there is enough profit from the sale of an investment to cover Capital Gains Tax (CGT) and income tax liabilities before deciding to sell.

• Timing a sale to fall within the optimal financial year (e.g. in a year where your taxable income is lower or when relevant tax changes come into effect).

Invest in knowledge

Later in life, you have fewer working years remaining to recover any losses. Given the far-reaching implications of investing, I highly recommend first speaking to a financial adviser.  Many times the fees are paid for in initial tax savings. 

They can help you maximise your returns, minimise your tax, ensure you don’t inadvertently leave yourself worse off and give you peace of mind.

After all, the whole point of investing is to make money. And, without current professional advice, you simply don’t know what you don’t know!

Helen Baker is a licensed Australian financial adviser and author of the new book, Money For Life: How to build financial security from firm foundations (Major Street Publishing $32.99). Helen is among the 1% of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au

Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.