Top tips for how to get started on investing later in life

Have you found yourself in your later years without having seriously looked at investing?

Don’t worry: you’re not alone.

The good news is that it’s never too late to start.

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

Others have a newfound 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.

Update your strategy – when was the last time you updated your spending and investment plan (or household budget)? It may have been before the children 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 and groceries. Your goals, healthcare and lifestyle needs may also have changed. Update your strategy to align with your current goals, values, income and spending habits. Then, you will understand how much you can invest and where to direct those funds.

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
• investments: re-examine 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’ll 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. 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: 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 benefactors.

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 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 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/part-pension or self-funding 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 include:

• determining the most tax-effective ownership structure. For example, do you invest in your name or your partner’s? Through your super, 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 and income tax liabilities before deciding to sell
• timing a sale to fall within the optimal financial year (for example, 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 you’ll find the fees are paid for in initial tax savings.

 Helen Baker is a licensed Australian financial adviser and author of the book, Money For Life: How to build financial security from firm foundations. Find out more at onyourowntwofeet.com.au