Retirement matters

There’s a lot to look forward to

In your 50s, it’s important to make retirement planning a priority if you haven’t done so already. At this age, retirement is no longer a distant concept, and time is short if your plans aren’t on track.

This means it’s crucial to think about your retirement income goals and the steps that you need to take to achieve those goals.

Variables to consider
One of the most important things to do in your 50s is to work out how much money you’ll need to retire comfortably. You will have many variables to consider, including the age that you plan to retire, your life expectancy, your income requirements in retirement, your expected investment returns, inflation, tax rates and whether you qualify for the State Pension.

Once we’ve worked out how much money you’ll need to retire, we can then determine whether you’re on track to reach your goals. We’ll do this by working out how much money you have saved for retirement now across your various pension, investment and savings accounts, and projecting your total retirement savings into the future.

Providing more clarity
If you have multiple pension accounts, and if appropriate, it may be worth considering a pension consolidation at this stage of the process. This can provide you with more clarity in relation to your overall pension savings and make it easier to plan for retirement. You may also benefit from lower costs.

Many people realise in their 50s that their pension savings are a little on the low side. For example, the 2019 Close Brothers Financial Wellbeing Index found that 46% of UK workers aged 55 and over felt unprepared to retire, with 45% of people in this age bracket stating that funding their retirement was one of their top three money concerns. Luckily, in your 50s, there is still time to boost your retirement savings significantly.

Grow pension savings
One of the most effective ways to grow your pension savings is to save money regularly into a Self-Invested Personal Pension (SIPP) account. This is a government-approved retirement account that enables you to hold a wide range of investments and shelters capital gains and income from HM Revenue & Customs.

SIPP contributions come with tax relief. Basic-rate taxpayers receive 20% tax relief, meaning an £800 contribution gets topped up to £1,000 by the Government, while higher-rate taxpayers and additional-rate taxpayers can claim an extra 20% and 25% tax relief respectively through their tax returns.

Tax relief purposes
For 2019/20, the annual pension contribution limit for tax relief purposes is 100% of your salary or £40,000, whichever is lower. However, you may be able to take advantage of ‘carry forward’ rules and make use of unused annual allowances from the previous three tax years if you had a SIPP open during this period.

Another option to consider is saving and investing within a Stocks & Shares ISA. Like the SIPP, this type of account allows you to hold a wide range of investments, and all capital gains and income are sheltered from the taxman. Each individual can contribute £20,000 per year into a Stocks & Shares ISA.

Asset allocation
Your 50s is also a good time to review your asset allocation. You’ll want to ensure that your asset allocation matches your risk profile now that you are getting closer to retirement. As you move closer to retirement, it’s sensible to begin reducing your exposure to higher-risk assets such as equities.

With retirement just around the corner, you don’t want to be overexposed to the stock market, as there is less time to recover from a major stock market shock. Your asset allocation is an issue that you’ll want to pay close attention to as each year passes in your 50s.

Debt reduction
It’s also sensible to focus on reducing your debt in your 50s. The less debt you carry into retirement, the better – and eliminating debt early could have a big impact on your overall retirement savings.

It goes without saying that higher-interest rate debt such as credit card debt should be prioritised and paid off as soon as possible. However, many people in their 50s also have mortgage debt, so it can make sense to prioritise this as well and pay this off completely. This can free up a substantial amount of cash flow that can then be redirected into your pension.

Regular reviews
Finally, in your 50s, it’s important to review your retirement plan on a regular basis. Retirement planning is a continual process, and the more frequently you review your progress, the more prepared you’ll be for retirement and the more in control you’ll feel. At a minimum, aim to review your retirement plan at least once per year to ensure that you’re on track to achieve your goals.

As with all of life’s plans, things go awry, opportunities can present themselves or you may simply have a change of heart. If you fail to go back to your financial plan, you may find years later that it hasn’t suited your goals and priorities for some time. It’s also the perfect time to reassess your life goals.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE TAX BENEFITS RELATING TO ISA INVESTMENTS MAY NOT BE MAINTAINED.
THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.