Financial Tips for Those in Their 40s

12 September 2017  |  Dr. Ella Rabener
 Financial Tips for Those in Their 40s
Just 13 percent of Brits feel confident that they will have the income they hope for in retirement.
13 percent! This figure is shockingly low when it really shouldn’t be. Here are some financial changes that those in their 40s can make to avoid becoming part of the underconfident 87 percent.

Life can be very expensive for those in their 40s as costs may rise in the form of children and property. Mortgages can become eye-wateringly high as more offspring prompt more bedrooms. Those in their 40s may also start to be faced with the costs of supporting their own parents as old age creeps in and pensions may disappoint. But, these challenges can all be overcome! Well-prepared 40-year-olds will sail through this decade, sanity intact. Here is how to do it:

1. Don’t buy the biggest house you can afford

It may be tempting to go for as much space as you can afford, but choosing to push yourself on your mortgage over pushing yourself on pension contributions could be an expensive mistake. Don’t forget that a big house comes with big living expenses (potentially expensive maintenance and repairs, higher council tax and more space to heat and light). Buying a slightly smaller house will give you a bit of financial freedom elsewhere, so you can make controlled decisions about your future. You may now be able to upgrade your kitchen or bathroom in a few years time, or even build a conversion or extension. Your cash-poor neighbours will note you with envy.

2. Consider restructuring your mortgage

Ask yourself: when do you want your mortgage to be paid off? You may have recently moved house to accommodate growing children and now find yourself laden with a 30-year mortgage – the type of term that could overlap with your retirement. Mortgages and retirement do not go well together. The long-hoped for travel plans will not be as relaxing if you are still burdened with mortgage payments. Consider re-structuring your mortgage so that you can get it paid off before you retire. There are now some great online tools you can use for this kind of mortgage restructure as general appetite to do so rises. The sooner you pay it off, the sooner you escape the threat of rising interest rates and the sooner you can enjoy financial freedom.

3. Carefully plan spending on your children

Parents want to do their absolute utmost for their children from day one. But, if just for one moment you consider offspring purely as a financial outgoing, you quickly realise that they can cost quite a lot and for quite a long time.

Parents with limited financial resources should carefully plan how they want to spend their money on their children – some may prefer private prep schools, some may rather save the money to help with a deposit for a house later on. Either way, it is worth having the conversation now so that you can prioritise what you consider to be the most important outgoings for your children over their lifetimes.

4. Gain a full picture of your parents’ financial situation

This might be the decade when some parents start to need financial support. There will be some with sufficient pensions and savings to remain happily independent, but not all will. The important thing is knowing which category your parents fall into. If it looks like they may need your help, then you need to start planning how and when you might be able to do that. Better to know now so you can avoid any nasty surprises.

It might also be wise to consider their current financial situation in terms of inheritance tax so you can start to restructure assets to minimise the tax implications. Taking the seven-year taper rule into account is a good place to start. If inheritance tax is due on a gift, it will be charged at 40 percent if given in the three years before death. This charge reduces from 40 percent down to 0 percent over a sliding scale of 3 – 7 years. For example, if a gift is given six years before death, inheritance tax will be charged at 8 percent instead of 40 percent.

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5. Make sure you have all the relevant insurances

You may resent those monthly direct debits, but you will be very grateful that you kept them up should you ever need to make a claim. By your 40s, you may have dependents, a house and a busy job and you will be relying on your health to keep up with your demands. You really do need to be prepared for every possible scenario.

Life insurance and private medical insurance are two of the obvious ones and some workplaces offer these insurances as part of their benefits package. Car, travel, pet and home insurance should already be in place by the time you get to your 40s, but do double-check to make sure you can tick them all off your list.

A Slightly Higher Monthly Contribution Can Make a Big Difference

20-year impact of different savings plans

20-year impact of different savings plans

Assuming a starting capital of £10,000, invested in a VaR 20% portfolio. Calculations account for inflation so the final amounts are the equivalent of today’s purchasing power.
Past performance or future projections are not indicative of future performance.

Look into income protection, critical illness and long-term disability cover, especially if you are self-employed. It is far better to be prepared for every scenario than fall ill and leave your dependents wanting.

Remember to keep shopping around to make sure that you are not overspending every month. Also, make sure that you don’t end up over-covered and paying for insurance that you no longer need.

6. Save your leftovers

If there is anything left over after you have managed to pay for all of the above, save it! In general, start by filling up your ISA, then move onto your pension, anything else can go into your general investment account. In 20 years time, the problem of having saved too much will seem preferable to that of having too little…


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Dr. Ella Rabener
Ella combines finance expertise, completing a doctoral degree in business and advising leading financial institutions while working with McKinsey & Company, with several years of experience building e-commerce startups, most recently as founder and CEO of