Your 50s are a crucial time for your finances.
Men, for instance, will typically hit the height of their earning power within this age bracket (for women, it’s in their 40s).
At the same time, it is possible to find more freebies which you might be able to use to save money. For example, home improvement grants, pension credit and carer’s credit.
One area where many over-50s struggle, however, is with their investments and pension savings. For a lot of people, there is a feeling that they have “missed the boat” by not putting enough money aside for a comfortable retirement earlier on in their careers.
Whilst we at Cedar House would always recommend starting a savings and investment plan as early as possible, it is not necessarily too late.
Remember, wages tend to reach their zenith at middle age, and many large expenditures tend to go down or even disappear for many people.
For instance, your mortgage might be paid off by this time (or almost paid off), and quite possibly your children have left home to fund their HE courses through student loans.
Working Towards a £1m Pension Pot
Yes, this is a lot of money to aspire to at any age. For a 50 year old who maybe has 17 or 18 years of paid work left, it can be even more daunting. But hear us out.
There are many “tax efficient wrappers” on pensions and ISAs to take advantage of, which can help you put money aside (tax free) towards your retirement.
Also, remember there’s the “annual allowance” set by the government, which lets you save up to £40,000 a year, tax free, towards your pension.
Saving £40,000 a year might sound unrealistic, but when you break it down it can start to feel more digestible.
First of all, the government “tops up” your pension as you save into it. To give an example, if you are a basic rate taxpayer, you only need to contribute £80 towards your pension in order to put aside £100. If you are on the higher rate, then you will only need to put aside £60.
If we blow this up to the larger scale, this means that someone earning a £70,000 salary would need to contribute £27,000 each year to put £40,000 aside for their retirement.
If you did this every year for 17 years, then you would have £680,000 in your retirement pot before any investment returns. When you add a modest, annual investment return into the equation (say 4%), they you are looking at potentially £1m.
So when people ask the question: “Is it too late for someone to start investing towards their retirement at 50 years old?”, our answer is an unequivocal “No!”
However, how this plays out for you personally will vary significantly on a number of factors.
Key Questions To Answer Before You Start Investing
First of all, how old are you and how many years of work do you potentially have left? For instance, if you are 55 and want to retire at 65, then you have 10 years of work and earnings left. If you are 50 and are happy to work until you are 67, then that’s 17 years left.
Second, what savings and assets are you already bringing to the table? If you have £100,000 already in a pension pot, then you will obviously have an advantage over someone who has a meagre / non-existent pot.
Third, what are your earnings and how much can you realistically put aside each year towards your retirement? For instance, you might be on £40,000 a year with your house fully paid off. Or you could be on £70,000 a year with lots of liabilities and expenditures which limit your ability to put money aside towards investing.
Fourth, what are your specific financial goals? Do you have a particular annual income you want to achieve in retirement, for instance? Do you want to retire early? These and other questions will be crucial when deciding how and where to invest.
If you have read this far, the chances are you are genuinely interested in devising a solid investment plan. If so, then it is worth considering talking to a qualified financial adviser to help you sift through the issues and nail down a smart financial strategy.
If you feel that someone you know might benefit from our financial advice, then contact one of our advisers today to arrange a free, friendly chat and consultation.