40 Something Wealth Accumulators

This decade of life is a time when you really start putting it all together. Once you make it into your 40s, you have tried out different occupations and gained a lot of work and personal life experience. Finally things all converge when you figure out who you are, what you’re passionate about (professionally and personally), and a realization of how quickly life goes by.

From a financial planning perspective, 40-somethings have this unique timeframe where they have this amazing life knowledge and still have 20-30 working years to make a big impact for long-term plans. Getting the appropriate investment footprint in place is crucial to getting things set up properly.


Peak earning years mean peak tax liabilities however there are things that can be done to provide relief - particular around super.


Our focus here is putting in place a portfolio of quality assets which are actively managed and focussed on long term wealth creation.


Many of our clients in this lifestage are managing debts and dependents. Quality policies and the right amount of insurance are key focus areas.
Some key strategies we use with our "40 Something" clients
This your consolidation stage – achieving a comfortable lifestyle and thinking about managing your long-term future. Key focus areas for you will typically be on a) protection of lifestyle; b) healthcare; c) wealth creation; d) tax management; e) investing lump sums (such as inheritances); f) retirement planning; g) long-term care planning and h) debt management.

Active Investing

Active investing is an investment strategy that aims to outperform the returns of a specific index or
benchmark. The level of return that exceeds index is referred to as alpha.

This approach differs to passive investing where the objective is to match the performance of an
index or benchmark.

Benefits of this approach

  • Active investing may appeal to investors that seek a return that exceeds the performance of the broader market.
  • May be suitable for investors that seek exposure to a niche strategy or segment of the market. F
  • Active investing may appeal to investors wanting an investment outcome with a superior risk and return payoff to passive investing.
  • The strategy allows for the deliberate introduction of tilts into a portfolio such as an underweight or overweight allocation to specific sectors or investment styles.
  • Active investing can be combined with passive investing to target less efficient segments of the market where fund manager skill is more likely to generate alpha.
  • Active investing can align closely to a specific investing objective and tolerance to risk.
  • It is a suitable strategy for investors that are willing to be more engaged in the investment process. This reflects that investment outcomes are now a function of two factors: market movement and manager skill.
Active investing can provide specific exposure and be managed in a benchmark unaware manner. This flexibility can avoid sectors that are expected to underperform the broader market – for example, sectors that are facing structural decline or where valuations are exorbitantly high. Active investing also enables investors to target specific characteristics, such as a greater focus on income and full franked dividends. This flexibility typically cannot be implemented via passive investing.

Active investing may be suitable for investors seeking higher risk adjusted returns than the broader market. We achieve this by rotating the portfolio in response to the business cycle and to relative valuations amongst sectors. For example, an active strategy may switch between defensives and cyclicals or large and small caps. This flexibility can provide a cushion in down markets while increasing risk when the outlook is more favourable.

It is important to know that active investing requires a level of engagement above what is required when passive investing and costs can be higher due to the higher number of transactions involved. And, of course, like all investing, superior returns are not guaranteed.

Reducing tax and building wealth for retirement

The appeal of pre-tax super contributions for your lifestage is that they are taxed at just 15% for up to a total of $30,000 (for the 2015/2016 year) and $35,000 if you’re aged 49 years or older on the 30 June 2015. So, if your taxable income is more than $80,000 annually, your personal tax rate is at least 37% (based on the 2015/2015 Personal Tax rates for residents). It's important to note that the annual concessional cap for those aged 48 and under is only (based on the 2015/15 tax year).

So in this case, and for higher income earners, making pre-tax super contributions means that a greater proportion of your money goes into your nest egg than in tax.

Things to be aware of

There are some key implications to be aware of if considering this strategy:

  • Any concessional contributions you make over the cap will be taxed at your marginal tax rate. You may also incur interest for the increase in your income tax liability. You will however be entitled to an offset equivalent to 15% of the excess concessional contribution (which is not refundable). You can elect to have up to 85% of excess contributions refunded from super – any amounts not refunded will count towards your non-concessional contribution cap.
  • Employer Superannuation guarantee contributions also contribute to your cap so you need to take them into account when working out how much to sacrifice.
  • It’s important to remember you generally can’t access your super money until you reach preservation age – generally age 60 – and permanently retire from the workforce.
  • You cannot salary sacrifice bonus or commission payments after they have been earned.
  • Individuals with combined income and super contributions of more than $300,000 may incur an additional 15% tax on concessional contributions.
The common belief that “it won’t happen to me” results in many people having a sound plan for wealth creation but not for protecting the very thing that generates wealth, themselves. When your in your 40s, you may still be paying off debt and have dependents to look after - insurance can be critical.

Life insurance

Life insurance pays a lump sum to the deceased’s beneficiaries or estate upon death. Beneficiaries can use the lump sum to repay debt, pay for children’s education or long term care, or any other purpose.

Life insurance policies which are owned directly generally have the following features:

  • Premiums are usually not tax-deductible.
  • In the event of death, the lump sum is generally paid tax-free to the nominated beneficiary.
  • There are generally no restrictions on who can be nominated as beneficiary.
  • If a beneficiary is nominated, proceeds are paid direct to that person and bypass the estate.
Total and permanent disability (TPD) insurance

TPD insurance pays a lump sum if the person suffers an illness or injury which totally and permanently prevents them from working again. TPD insurance can provide cover based on the person’s own occupation or any occupation. A
person working in a specialist occupation may gain greater protection by choosing own occupation cover.

Premiums on TPD policies which are owned directly are generally not tax-deductible. In the event of a claim, the proceeds will be paid direct to the insured person or their nominated beneficiary. The proceeds are generally only taxable if paid direct to someone other than the insured person or their near relative.

Income protection

Income protection, or salary continuance, provides a regular income if a person is unable to work due to sickness or injury. This type of insurance can be particularly important for a person who has loans or geared investments where the loan repayments are reliant on the person’s income.

Income protection provides a regular income during the period the person can’t work. A waiting period will usually apply before payments commence. A person can generally choose a waiting period between 14 days and two years. A longer waiting period will usually result in a lower premium.

A policy will usually pay up to 75% of income. If the policy covers an ‘agreed value’, the monthly payment is stated in the policy and this is the amount that will be paid if a claim is approved. ‘Indemnity value’ means the amount of the monthly payment will be determined at the time of making a claim, based on 75% of the income earned in the 12 months prior to the claim.

The cost of income protection premiums are generally tax deductible, which helps to reduce the effective cost of the insurance. In the event of a claim, the monthly payments are taxable income.

Trauma insurance

Trauma (or critical illness) insurance provides a lump sum upon diagnosis of a specified illness or injury.
Trauma insurance is designed to provide money to help the insured person recover financially after a trauma or crisis, such as a heart attack, stroke, cancer or other life threatening illness.

The payment is made regardless of whether the person is able to return to work and is designed to relieve financial pressure at a time of great stress. Premiums for trauma insurance cover are generally not tax deductible. In the event of a claim, the proceeds are generally paid tax-free.

Amount of cover

In determining the amount of insurance a person needs, consideration needs to be given to the potential loss that could result from various risks. Decisions need to be made as to what risks can be retained, what risks can be avoided and what risks must be transferred. The amount and types of cover that a person needs will depend on their circumstances and objectives. It might include factors such as marital status, whether the person has children, their budget, how much they want to provide for dependents and their level of assets and debt.

Need Advice?

Contact us

Paladin Wealth Advisers Pty Ltd
Phone:(02) 9216 9030 Fax: (02) 9775 2121
Address: Level 29, Chifley Square, Sydney NSW 2000.
Email: Greg@PaladinWealthAdvisers.com.au

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