I hate to be the bearer of bad news, but if you’re reading this article, on the website of a financial planning business that specialises in working with 55 year olds, I can probably assume something about you: You’re not 25 anymore.
In most areas of life, this doesn’t mean anything. Our clients constantly tell us that they feel no different to what they did 30 years ago, they are happy doing what they’re doing and don’t want to do anything differently in the short term. The average 55 year old who comes to see us doesn’t necessarily want to change much over the next 5 years. The major difference we see between 25 year olds and 55 year olds? At 55, you can’t afford to make a big mistake.
We used to work with clients of all ages. Most of the time, it’s harder to keep a 25 year old from doing crazy things. I thought this was mainly because our 55 year old clients had already ‘got it out of their system’. What I’ve realised though, from a rational economic point of view, is that the cost of making a big mistake is just that much higher for someone who’s 30 years older: it isn’t worth it anymore.
For example, I have a mate who came to me a while ago as he’d recently gotten engaged. We discussed his long term plans, and he had a spare $10,000 that he wanted to invest for the long term. We came up with a plan which he had great intentions of sticking to… until he decided to buy a race horse instead. When he told me this was his new retirement plan, after I stopped laughing I thought about it some more. He’s on a decent income, and will likely have more than enough money in super by the time he gets to age 60. So while he can fully appreciate that it’s not the best decision, the cost to him isn’t huge i.e. he will still have enough to retire when he wants. If he was 55, and needed to use that $10,000 to make additional super contributions, we would be having a very different discussion… because the cost of making the ‘mistake’ would be that much higher, since he doesn’t have 30 years of work left to make up for it.
This isn’t to tell you not to buy a race horse if that’s your life’s dream. If you do, I hope you have better luck than my mate (it got colic and only ever ran twice). The main point here is just to be aware that you may not have the time to recover from some of the mistakes that a 25 years old can get away with.
Written by Dallas Davison.
Dallas Davison, Michael Hogue and Ali Hogue.