Pension tips for people in their 40s

By July 14, 2020 No Comments

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

Turning 40 can be a time of great change for many people. The kids are older and perhaps you have been in a career for many years. This is a good time to take stock and evaluate – particularly your pension, and how you will fund retirement. Sadly, however, the hard truth is that it will likely take more effort to reach your financial goals in retirement when starting at 40, compared to if you had started at 20.

Suppose, for instance, that you had started saving £125 a month into your pension from the age of 20. Assuming a 6% average annual return (after fees), your pot could have grown to nearly £450,000 by the time you turn 70 (without factoring in inflation). For a 40-year-old, you have 30 years of compound interest and investment performance before you reach age 70 (rather than 50 years for the 20-year-old). As such, it could take a monthly deposit of £450 rather than £125 to reach roughly the same level of savings.

Although the clock cannot be turned back it is better to start planning your retirement now rather than not doing it at all. If you would like to speak to an independent financial adviser here at Elmfield in Padiham, Burnley about a pension plan you can reach us via:

T: 01282 772938

Calculate what you’ve got

Most people by age 40 will likely have at least some pension savings under their belt – possibly in multiple pots from different jobs. It’s important to track these down and to discover what they’re worth, to get a more accurate idea of your current position. For certain pensions such as final salary schemes, it might help to enlist a financial adviser to help you calculate how the income will unfold in retirement (since this type of scheme promises a future income; there is no “pot”).

Work out where you’d like to be

The difficult reality for many 40-year-olds in 2020 is that your investments are likely to have been hit by two enormous stock market crashes: the 2008-9 Financial Crisis and the “ Bubble” in the 1990s. Today, your portfolio will probably also have been hit by the downturn caused by the COVID-19 pandemic. Fortunately, there is still plenty of years ahead of you for your portfolio to recover and grow, helping you attain the goals you want in retirement.

Setting realistic retirement goals for yourself is tremendously important, and here it will likely be necessary to have a financial adviser outline the hard facts to you. This will involve looking at what your income and assets are now, as well as what they are likely to be in the future. Some may be in the fortunate position of having, say, a business which they could sell, where some of the proceeds could be committed towards a pension fund. However, others may be less fortunate and need to revise and address issues such as personal debts that may affect their retirement savings potential.

Optimise your taxes, performance & charges

Once you have a clearer idea of your financial situation in your 40s and where you want to be in retirement, it’s time to carve out a plan. Again, having a financial adviser can be very useful to minimise unnecessary risks, identify pitfalls as well as opportunities. On the latter, for instance, it may be that improvements could be made to your portfolio which could increase your growth potential.

Perhaps you are holding most of your capital in cash where poor interest rates could even result in your wealth becoming eroded (due to a higher rate of inflation). Moving some of this capital into other assets (e.g. bond/equity funds), in line with your risk profile goals, could result in a much larger fund in 20-30 years.

Another scenario could be that some of your investments are resting on shaky fundamentals or are not diversified enough, putting what wealth you do have at risk. Finally, it may be that you have not yet taken full advantage of the state pension opportunity in front of you – perhaps due to a career break to raise children. These are all areas where seeking professional financial advice can add great value – helping you avoid costly mistakes and seize opportunities which you may not have known that you had.

Conclusion & invitation

Starting a serious pension plan at age 40 may be a late start. However, it’s not too late. With a strategic plan and a realistic set of goals, it’s possible to build your wealth over the next 20-30 years to achieve a comfortable retirement income.

If you are interested in starting a conversation about your retirement strategy, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

Reach us via:

T: 01282 772938