Those in their 50s might be starting to realise that they haven’t quite managed to save enough to fund their dream retirement. If they want to retire in their early 60s, they might need to fund 35 years without a regular salary as those currently aged 50 have a 50 percent chance of reaching the age 95.1 Those in their 50s are probably earning more money than they ever have done before, but they would be wise to treat this extra cash with caution.
Your salary may be the highest it has ever been, but that doesn’t necessarily mean that you should start buying yachts. Some will need their pension pot to last almost four decades. It may be tempting to enjoy the extra income, but try to save it. Although it is important to enjoy the fruits of your labour, your future self will be grateful for having too much cash, rather than too little.
The last thing you want to think about when you start your retirement is paying off a mortgage, or really any kind of debt. Try to spend your extra income on getting rid of any debts. At retirement, a lot will find that their pension generates less income every month than their salary did and they won’t want to spend their limited cash on interest payments. The clean slate will give you invaluable financial freedom.
Research shows that 74 percent of ‘Boomers’ wouldn’t consider dipping into their retirement fund. But this means that 26 percent would.2 Do try to resist the temptation to do so, it’s likely that the fund will need to last for a long time. This won’t be easy; the state pension age keeps rising and you may be starting to wind down at work, but try to hold out on your retirement fund for as long as you can. What seems like a lot may actually be worth less than you think.
Imagine you’re aiming for a pension pot worth £800,000; seemingly a huge amount. In reality, £800,000 will only buy you a £40,000 annuity. If you retire in 15 years time and assume a 2 percent rate of inflation, that £40,000 is equivalent to just £30,145 in terms of today’s purchasing power.
At this stage of your career, it might be tempting to start your own business; you will have a lot of experience and a broad network of contacts. Bear in mind, that if you do decide to start something yourself, don’t pour all of your savings into it. New businesses do sometimes fail, so only invest as much as you can afford to lose.
If you have already started your own business, you may have a large proportion of your wealth invested in the business. As you begin to reach retirement and wind down, it might be sensible to diversify your assets a bit and start taking some cash out of your business. Using the cash to open a low-cost investment portfolio would ensure that your risks are broadly spread. Otherwise, all of your eggs are in one basket, and that will backfire should the business deteriorate.
It’s important to get exit strategies in place too. Those that have grown enormously successful businesses will want to retire eventually, and they will not want to see their business falter in their absence. Some exits may involve a sale, some a complete restructure. Either way, it will likely take years to prepare so those in their 50s would be wise to start thinking about it now.
You have probably added a few extra insurances while you were in your 40s, to secure your family and your income in case of a serious injury or even death. Now is the time to review them. If your children are no longer financially dependent and your debts are under control, your need for insurance will not be so great.
Have a close look at the various types of insurance you hold and see which monthly direct debits really do need maintaining. For example, you may want to increase the breadth of your private medical insurance and think about winding down your income protection, especially if your children are now becoming financially independent. Shop around and check that your deal is the best and cheapest for your needs. There are several insurance comparison websites which can give you a good idea of price.
The investment strategies of any ISAs, SIPPs or general investment accounts that you may have opened in your 30s could do with a review by the time you reach your 50s. As you get closer to retirement, it would be wise to start reducing the risk of these investments. You won’t need to remove risk completely (for example by moving into 100% bonds) as you still want your portfolio to generate decent returns, but start scaling risk down in line with your future liquidity requirements.
Some become overly conservative in their approach to risk at this stage, but if you do live till the age of 95, your investment portfolio still has a very long time horizon so will be able to withstand a fairly robust level of risk. A globally diversified portfolio with carefully controlled downside risk would be the best option.
Image: Unsplash.com/Clem Onojeghuo
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