Turning 40 is an excellent chance to reflect on how far you’ve progressed in life, the successes you’ve achieved, and the relationships you’ve formed. However, for many people, especially those who don’t have all of their finances in order, this can be a moment of fear.
At this age, you might be mindful that retirement isn’t a million miles away. Therefore, if you want to enjoy your older years in the way you dream of, without any financial worries, you should get serious about your money. That’s why our Director and Chartered Financial Planner Wayne Audsley, has suggested a few money moves everyone should consider before this major milestone approaches, that will stand you in good stead for the future.
- It’s never too early to start paying into your pension
If you haven’t already started paying into your pension, then Wayne says ‘now’s the time!’.
“You might think you’re too young, but there’s really no age that’s too young,” he commented.
As an example, consider Sarah and George, two pension savers. Sarah begins her pension when she is 20 years old, investing only £50 a month. However, George waits until he is 40 years old before investing, but he does so at a monthly rate of £100.
Assuming a four per cent average interest rate, George will have a pension fund of slightly over £36,500 at the age of 60. Sarah, on the other hand, will have a pension fund of nearly £60,000 at the same age. Notice how the two savers have invested the same amount of money over time, yet Sarah has nearly doubled her money thanks to the effects of compound interest, while having to do without less of her income on a monthly basis.
Wayne continued: “If you have been paying into a pension, then this is the perfect time to review it. It’s likely you will have moved employers since first starting work and it’s important to make sure any pots you’ve accumulated are working as hard as possible for you. For example, many workplace pensions are invested into what’s called a default fund which includes what is known as ‘lifestyling’, which in most cases are unlikely to be the most suitable option because they don’t take account of investors’ individual circumstances. So, it’s a good idea to regularly take stock of what you’ve got and ensure any investments you make, including their level of risk and potential for growth, are tailored to your specific needs.
“Set yourself a target sum for when you retire, then look at seeking financial advicse on the best way to achieve this sum with your income.”
- Review your mortgage
If you’ve got a mortgage, now is a great time to review that too.
How sure are you that you’re still getting the best rates if you’ve had your mortgage for a while and haven’t checked it, for example?
Although mortgage advice is not part of Lairgate Financial’s services, Wayne has outlined a few questions that you should be asking yourself.
“First of all, are you on track to pay it off at a point which fits with your vision for your retirement or semi-retirement? What kind of mortgage did you take out? Is that still the best option for your situation?” he continued.
“If you took out an interest-only mortgage, then maybe consider switching to a repayment one for more financial stability. Alternatively, check that you are putting money aside into an adequate investment, which means you’ll have enough money to pay off the outstanding balance at the end of the mortgage term.”
- Assess your financial protection
Pensions and savings are most likely to come to mind when considering financial planning. Protection, however, should also be a key element of everyone’s financial strategyies, but is one that’s too often disregarded.
Protection is a collective word for insurances such as life, critical illness, health, income and business insurance, and is designed to give you the peace of mind that you are covered if the unexpected should happen.
Wayne explained: “Your circumstances and priorities will determine which protection products are best for you.
“If you have recently become self-employed, or are thinking about becoming self-employed, it’s particularly important to make sure you’re covered if you can’t work due to an accident or illness, and that your family are also protected if the worst happened, as you don’t have the back-up of an employer’s cover.
“There are many options available, from life and critical illness cover for your mortgage and any other financial commitments, to income protection, private healthcare policies and life insurance that would provide a lump sum to your loved ones should you die.
“However, they are all designed to provide you with a safety net and added peace of mind when things go wrong – and the past 18 months has reminded us all just how easily that can happen.”
Once you have the right protection in place, you can relax and focus on living your life to the full, with the people that matter most to you.
- Consider your family’s financial future
There are an abundance of options out there when it comes to saving money for your family’s future, and to decide what mixture works for you, it’s a good idea to first set out your goals.
“If your goal is to create a fund that will go towards your children’s future, let’s say for their first house deposit, putting away a small amount each month can make a big difference; again, the earlier you start, the better,” added Wayne.
“Another tip would be to have a good general re-look at all your finances. We are all guilty of not keeping track of our monthly direct debits, especially if we have busy family lives. And in today’s subscription economy, where everyone typically has a multitude of apps and services they’ve signed up to on a monthly or yearly basis, it can become particularly difficult to keep track.
“However, it’s amazing how much you can actually save if you keep on top of your outgoings, keep sense-checking them every so often and prioritising what you actually use/need.
“Of course, it depends on your financial situation and how much you can afford, but if your goal is to save for a comfortable retirement, for example, I would suggest, as a general rule of thumb, that you try to save between 15 and 20 per cent of your income each month.
“It’s amazing how the discipline of just setting a monthly amount aside each month, and treating it as you would a bill, can make all the difference in the long-run. And, once again, the earlier you start saving for whatever goal, the less you will have to sacrifice every month to get there.”
- Seek advice early
Wayne’s final tip is to seek professional financial advice early.
“Nearly all of our clients have said that they wish them came to us for advice earlier. For many people, they will invest in their pension and just leave it for years so that their investments are often not working as hard as they could be, meaning they might have lost out on an opportunity to make more of their money,” explained Wayne.
“When someone calls on us to review their investments, we can do a thorough check on all the funds and options available and recommend a suitable strategy for them, which suits their stage in life, financial goals and personal attitude to risk.
“As well as proactively managing your investments to ensure the best chance of growth, it’s also important to make sure any fees you are paying on those investments are fair and economical, otherwise this can eat into the value of your eventual pot, and we can review these too, running analyses on work out what will give you the best value for money.”
Wayne said it’s impossible to over-emphasise the importance of seeking sound financial advice, finding an advisor who will proactively manage your investments in the context of market developments, and then checking in with them regularly. In fact, a study conducted by the International Longevity Centre UK with support from pension provider Royal London, in recent years, indicated that those who seek professional financial advice end up £40,000 better off on average than those who do not.
Another study by the Unbiased.co.uk independent financial advice signposting site, found that those who seek guidance will save an average of £98 per month more over their lifetimes, equating to an extra £3,654 per year in retirement income based on a £100,000 pension pot.
Wayne added: “By getting advice at a younger age, we can help you make a vast difference to your finances in the long-run, by tailoring your investments correctly and guiding your other financial choices.”
If you’re questioning your financial position and would like to arrange a free, no-obligation initial appointment to take a fresh look at your financial health, and your options for everything from your pensions to your investments and the insurances you have in place, email us or call (01482) 860700.
This blog is intended to provide readers with viewpoints, opinions and inspiration regarding options they might want to consider. It is not intended to be taken as advice and we strongly recommend seeking professional financial advice before taking any action.