Your 50s are a crunch time when saving for your retirement. If you’ve already set a retirement savings target but have been neglecting it, the reality is that now you can’t afford to delay your planning any further – and it’s time for a careful review.
Are you on track to retire when you want to? Do you have enough in your pension pot to retire comfortably? A comfortable lifestyle means different things to different people. If you’re 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.
One of the advantages you have in your 50s is that you are no longer relying on very long-term projections to determine if you have enough for retirement. The decision to retire will also depend on how financially independent you are, how healthy you are and even perhaps whether you have hobbies or goals you’ll want to pursue.
Now is the time to think about your retirement income goals and the steps that you need to take to achieve your goals. One of the most important things to do in your 50s is to work out how much money you’ll need to retire comfortably.
There are 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.
Given the number of variables, this part of the retirement planning process is not always straightforward.
Nowadays, it’s common for many people to have accumulated an array of different pension agreements throughout their working life. By the time you have been working for a decade or two, you may have accumulated multiple pension plans on your career journey.
If appropriate, it may be worth considering a pension consolidation at this stage of your retirement planning process. This could provide you with more clarity in relation to your overall pension savings and make it easier to plan for your retirement. You may also benefit from lower costs.
But not all pension types can or should be transferred. It’s important that you know and compare the features and benefits of the different pension agreements you are thinking of transferring. It is a complex decision to work out whether you would be better or worse off combining your pensions.
In your 50s, one alternative way 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 (HMRC).
SIPP contributions receive tax relief. Basic-rate taxpayers benefit from 20% tax relief, meaning an £800 contribution is 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. Please note that the tax relief claimed from your tax return won’t be automatically added to your SIPP.
There is a limit to how much tax relief you are entitled to. It is currently applicable to contributions up to £40,000 or 100% of your earnings – whichever is lower. Another special feature is the three-year carry-forward rule. This rule allows you to carry the last three tax years’ annual allowance into the current tax year.
This is a useful feature for people who were unable to use up their annual allowances in the past but have the ability to do so for the current tax year. You must use this year’s allowance before using the carry forward rule.
There is also the option to invest 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 HMRC. Each individual can contribute £20,000 per year into a Stocks & Shares ISA.
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, and if appropriate to your situation, it may be sensible to begin reducing your exposure to higher-risk assets such as equities.
You need to pay close attention to your asset allocation and consider de-risking your portfolio. 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 correction.
If retirement beckons in the short to medium term, you may look to build a sustainable portfolio with perhaps an emphasis on greater income and reduced volatility and risk. However, moving away from an exposure to growth assets entirely or too early can be very expensive, so it’s essential you obtain professional financial advice before taking any action.
Unless your situation is unusual, some retention of these growth assets is going to be required during a retirement that could last more than 30 years. It’s important to balance the need for liquidity and an exposure to growth assets.
Finally, in your 50s, it’s important to review your retirement planning on a regular basis. As with any other aspect of your personal finances, it’s essential to conduct regular reviews of your pension arrangements to ensure that they fit best with your current situation.</p.
A regular review will ensure healthy progression towards retirement by checking that you are firmly on track with your retirement goals. This is the time to adjust your plan to fit any evolving needs and desires for your post-retirement years. We all change as people over time, and our pension pot needs to reflect our most current reality.
Retirement planning is a continual process, and the more often 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 planning at least once annually to ensure that you’re on track to achieving your retirement goals.
Whatever your thoughts, to ensure you take account of the full range of available options, we would always recommend you consider obtaining professional financial advice.
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.
THE TAX BENEFITS RELATING TO ISA INVESTMENTS MAY NOT BE MAINTAINED. TAX RULES ARE COMPLICATED, SO YOU SHOULD ALWAYS OBTAIN PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT.
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.
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.
This content is for your general information and use only, and is not intended to address your particular requirements. The content should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. All figures relate to the 2018/19 tax year, unless otherwise stated.