I’m 40, is it too late to start creating and protecting my wealth?

If you’ve hit the “middle age” years and don’t have a lot of savings to show for it, you’re not alone. It’s become increasingly common for South Africans to defer good savings habits until their late 30s. While there will always be others who seem further along on their wealth journey, you can take comfort in knowing that your best earnings years are probably ahead of you.

As much as we’re taught that the true power of compound interest is time and that saving for the future must start at a young age, many people only start to seriously plan for their long-term wealth in their late 30s and 40s. When you’re younger, you earn less but still crave experiences like traveling the world.

With so many things competing for your disposable income, it’s easy for savings and insurance to be neglected. Still, these experiences have a lot of value, helping you make memories that aren’t easily replicable when you’re older and have more responsibilities.

Wherever you are financially, remember that the best time to start saving and investing – in the market and yourself – is now. And while you can never go back and start saving earlier, there’s a lot you can do as you enter your prime earning years.

For those wondering how to start saving at 40 or is it too late to save for retirement at 40, take encouragement from the fact that many successful billionaires only amassed their fortunes after 40.

Be (very) careful of your sources of advice

To make up for lost time, you may be tempted by unregulated products that sound too good to be true. Social media is a particular risk here with the risk of “finfluencers” whose advice ranges from budgeting basics to high-risk, complex investments. Remember: these creators earn money through affiliate links, paid content, and sponsorships.

Most do not have your long-term wealth in mind and are unregulated by any trusted financial authority. Despite this, they often claim to have found hidden secrets to making money, even though they rarely disclose their education, background, or financial interests.

Instead, choose a credible partner backed by years of expertise who takes the time to understand your needs and helps you build a realistic plan to achieve your goals. That’s the role of a good financial adviser. They know there is no one-size-fits-all because each person is at a different place in their financial journey.
 

Starting your savings and investment journey

The most important step in starting your savings and investment journey is having an emergency fund for unexpected expenses. This helps you avoid taking on additional debt and ensures you have enough liquidity for significant expenses, such as a deposit on a home loan. The last thing you want to do, if an unexpected emergency arises, is to dip into your investments, irreversibly eroding your long-term financial goals.

Each year, aim to maximise your tax-free investment allocation by opening up a tax-free savings account. Although these investments are highly liquid, if you leave them to grow, you’ll benefit from years of compounding returns without impacting your lifetime tax-free contributions.

Your most urgent investment in your future is your retirement annuity (RA). According to the National Treasury, only 6% of South Africans are on track to retiring comfortably. If you need to catch up on your retirement savings, building up your RA as quickly as possible should be a priority for the next 25+ years of working. Once you are contributing to it regularly, look at local and offshore unit trusts to get exposure to growth assets like equities to grow and diversify your portfolio.

At any time in your life, you may also inherit wealth (or receive a life cover payout). It’s not something we like to think about, but it may represent a substantial windfall for you. Speak to your financial adviser about how best to invest it.

To start investing today, you first need to open an investment account. Think of it like your first day at the gym. Starting to invest at 40 can seem intimidating, but small habits compounded over time can lead to significant changes.

Start with a monthly debit order of R1,000, increasing it by R1,000 each year until you reach R10,000 per month at the 10-year mark. Over a 30-year term, your investment could grow to R10 million, assuming an 8% annual growth rate. Ultimately, in investing, small habits compounded over time can lead to significant changes.

Life insurance

If you’ve started building your wealth later in life, you need a life cover benefit to bridge the low level of capital in your investment portfolio if you pass away. Besides helping your family stay financially secure, this will also help them cover short-term cash-intensive expenses, like estate duties, without being forced to liquidate your assets. You may be surprised at how cost effective a monthly life cover premium can be depending on your health status. An indicative premium* for R1 million in cover for a non-smoking 40-year-old female is approximately R147 per month.

Depending on how many dependents you have, you also need to think about the financial impacts of injury and severe illness. It’s not only the lost income potential of your monthly salary but also the funding required to adjust your lifestyle without taking on more debt. And if you think disability and severe illness cover can wait until later, consider that industry trends show that more and more sickness and disability income claims being paid to clients under the age of 45. Start now and protect the wealth you’ve been building so earnestly, even if you believe your investments are sufficient to cover the impacts of ill health. By ringfencing your risk to policies whose premiums are likely much lower than you imagine, you avoid eroding your capital and can continue to grow it.

In a perfect world, everyone would save the right amount at the right time and insure themselves against an event before it happens. But life is imperfect – just as we are. The moment of truth is when you get back on track and decide to start building again. This is your critical decade, and if you’re prepared to sacrifice a bit of “flash” to make the inroads needed to catch up, a late start would have been the launch pad for a more secure financial life.

^{*Please note that the monthly indicative premium quoted above is calculated based on a non-smoker status, and the assumption that the individual is part of a professional body.}