It’s only natural for those approaching their 50th birthday to question where the time has gone.
You might begin to ponder on the significant events that have occurred in your life and wonder about the milestones that remain.
It’s the ideal time to take stock and start recharging from the 50 years of successes you’ve attained so far, as well as the goals you still want to accomplish.
When people reach this milestone, what they do for the crucial next few years until they reach the age of retirement will ultimately determine how well they can enjoy those post-work years.
To prepare you for this, Wayne Audsley, our Director and Chartered Financial Planner, has advised a few financial measures that everyone should think about taking before the big 5-0 arrives, that will help you ensure you’re able to live your very best life when the time comes to take it easier.
- Create a plan for retirement
Normal minimum pension age (NMPA), which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge (unless they are retiring due to ill-health) will change from age 55 to 57, in 2028.
This mirrors gradual increases in the State Pension age for men and women, which will reach 67 by 2028.
So, what does this mean for you?
Wayne explained: “For example, this means that if you are around the age of 48 now, and were planning on retiring in seven years when you get to 55, you now have to wait nine years, until you reach 57, instead.
“If this affects you, and you don’t want to retire two years later than planned, then you need to consider if your pension pot is big enough to retire just before the change kicks in, or look at the possibility of using money you might have saved in an ISA or elsewhere to live on during the two-year wait until you’re able to access your pension, at 57.
“Taking your pension at 55 regardless of the change would not be a good idea, as this would cost you dearly on income tax, including affecting your ability to take 25 per cent of your pot as a tax-free lump sum before you start dipping into what’s left.
“If you’re in the age bracket which will be affected by this change, you might want to access your pension at an appropriate point before 2028, when the NMPA changes, even if you don’t need it, just to avoid being forced to delay longer than you hoped for.
“The good thing is that we have plenty of notice of this change so there’s time to plan the best option for you.”
- Make the most out of your pension
Your pension is likely to be your most valuable asset, aside from your home, and deciding when to cash it in is a vital part of the retirement planning process. You can crystallise your pension and start drawing an income from it once you’ve determined whether flexi-access drawdown, where you control your pot and choose how much you want to withdraw, year-on-year, or an annuity, where you hand over control of your pot to a specialist provider, in return for a set amount of income per month, is best for your circumstances.
“Above all, it’s important to be aware that pensions are complex, and exercising the freedoms that were introduced in 2015 isn’t something anyone should do lightly. The media was full of horror stories, when the change first came into force, of people going on spending sprees, buying themselves supercars or withdrawing all their cash in one go and giving themselves very large tax liabilities that they were often unaware of.
“While some of that hype has, thankfully, died down, the fact still remains that pension pots need treating with the ultimate amount of care, because, like all the best things in life, when they’re gone, they’re gone, and hopefully you’ll want yours to last you for many, happy, years.
- Call on the right advice
A word of caution for anyone thinking of going it alone, is to bear in mind that the human mind is not wired to consider the long term, and will often choose immediate gratification over holding tight to achieve greater rewards later on.
“Getting professional advice is therefore essential to sense check and safeguard your decision-making, and ensure you build your pot in the best way and then draw down on it, when the time comes, in a manner that ensures it lasts as long as you need it to and that you access any income you do decide to take out, tax-efficiently as possible.”
For example, if you want to draw your pension while you’re still working, you’ll need think about the tax implications. Your financial adviser can assist you in navigating this delicate balancing act.
There’s no denying that pensions are complicated. However, there’s no need to feel daunted – seeing a financial advisor at the appropriate times will give you both clarity and ultimately valuable piece of mind, allowing you to enjoy the retirement you desire without worrying about how you will make ends meet.
- Consider your savings strategy
Wayne explained why your late-40s to mid-50s, are such a critical time for maximising how much you save.
“If you’re among the lucky ones and are starting to see the end of your mortgage appearing over the horizon, you might be on the verge of having excess income, especially if your children have moved out or rely on you less financially.
“If that’s the case, now’s the time to decide what you are going to do with that extra bit of money that will no longer be leaving your account each month. Personally, I believe this is the last period of your life where you can make any crucial interventions with your retirement savings.
“If you still have quite a few years to run on what, for most people, is their biggest lifetime loan, then you could consider whether paying a bit extra every month might reduce it quicker, with a view to freeing up that income sooner, and enable you to have a final push on your pension.
“With interest rates as low as they are at the moment, you really need to think about where you are saving your money, to ensure it grows as much as possible. Again, by getting the right financial advice we can make sure that you are really squeezing the pips out of your savings potential and getting the most from your money.”
- Strive to reduce debt
Kevin O’Leary, also known as ‘Shark Tank’ investor, has been quoted saying that the best age to be debt-free is 45, especially if you want to retire by 60.
Being debt-free by your mid-40s, including paying off your mortgage, puts you on the fast track to prosperity, according to O’Leary. This is because it allows you to relieve yourself of financial responsibilities and re-divert your income into increasing your retirement savings to secure the best possible outcome.
Wayne said: “We understand that everyone’s financial situation is different, and so are their financial goals and aspirations for their future. However, if you can afford to pay off everything from your mortgage to unsecured debts like loans or credit cards, this will create space for you to really ramp up your savings at a critical time. And, when you do retire, you’ll be able to live on less, because you won’t have mortgage, loan and credit card outgoings to cover.
“Admittedly, this takes self-discipline, and you might need to make some choices in terms of your lifestyle now and how much you choose to splurge on certain things. However, when you weigh this up against the peace of mind that comes from being debt-free, and the opportunity to kick back a bit, sooner, I think it’s a no-brainer.”
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.