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A crucial decade: financial planning in your 50s

Planning & protection

8 December 2023

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Rob Halsall

Fairstone Chartered adviser, Rob Halsall considers how you can maximise your earnings while maintaining a robust financial plan.

As you sail into your 50s, it becomes pivotal to consider your financial strategy. Life has likely found a steady rhythm by now. Children have probably taken flight, becoming financially self-sufficient, and the idea of reducing work hours or even retiring completely starts to surface.

Each person’s life journey is unique and has different resources and challenges. However, there are shared goals and steps that one can take during this stage. Knowing where to begin can be daunting, whether you aim to maximise your earnings or lay down a robust financial plan.

 

Finding the balance between cash and investments

The key to financial stability lies in balancing cash and investments. It’s generally advisable to have an emergency fund that can cover three to six months of living expenses and any planned spending. This provides a safety net for unexpected events like job loss or significant sudden expenditures. However, the exact amount depends on factors such as employment security and expense levels.

While it may be tempting to hoard cash, having too much idle money is only sometimes the best strategy. For long-term goals, investing can offer the opportunity for your money to grow and outpace inflation.

Boosting retirement savings with higher earnings

As you enter your 50s, retirement planning should take centre stage. This period often comes with increased earnings, which, when channelled towards pension contributions, can yield extra benefits from tax relief. Determining how much capital you’ll need for the rest of your life can be challenging, but tools like pension calculators can provide guidance.

If your income has increased compared to in your 30s or 40s, consider using the extra money to accelerate your retirement savings. This could be in the form of additional pension contributions, with options like a Self-Invested Personal Pension (SIPP) offering flexibility.

Understanding State Pension forecasts

The State Pension forms a significant part of most people’s retirement income. Yet, there’s often confusion about its specifics. In your 50s, it’s crucial to understand the rules for qualifying, how much you’ll receive and from what age.

You can obtain a State Pension forecast from the government website https://www.gov.uk/check-state-pension, which helps you understand how much you could get and how to increase it. Monitoring your National Insurance (NI) contribution record is also essential, and you can fill any gaps in contributions from the last six years through voluntary payments.

Weighing mortgage payments against investments

Deciding between paying off your mortgage or investing the money is a personal decision that involves considering factors such as your risk tolerance, financial goals and tax situation.

If you’re risk-averse, you may prefer to pay off your mortgage quickly for peace of mind. On the other hand, investing could provide higher returns, especially for higher rate taxpayers making pension contributions if you’re open to taking some risks. Downsizing could also be an option if you own a large home. This could free up equity to fund your retirement and reduce maintenance costs.

 

Planning for succession and Inheritance Tax

As you age, it becomes increasingly important to plan for the future, particularly regarding passing on assets and managing Inheritance Tax. Even those who aren’t exceptionally wealthy may be subject to this tax.

Inheritance tax is levied on the value of an estate upon the owner’s death, but there are ways to reduce this liability, such as making gifts or setting up trusts. Ensuring your Will is updated to reflect your current circumstances is also crucial.

For a no obligation chat about your position and future plans get in touch today.

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A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

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