This content is for information and educational purposes only. It should not be taken as financial advice or investment advice. To receive tailored, regulated financial advice regarding your affairs please consult us here at Hanson Financial Services (financial advice in Liverpool).
Is it too late to start saving for a pension in your 40s? Whilst it is better to start saving far earlier for retirement (e.g. in your 20s), most people certainly still have time to build up their savings. In this guide, our team at Hanson Financial Services (financial advice in Liverpool) offers some pension-building ideas for people in their 40s. We hope you find this content useful and invite you to get in touch if you’d like to discuss your own retirement or financial plan with us.
40s pensions: taking stock
It is wise to consider where you currently stand, with regards to pension planning. For many, they have not made the most of the last 20 years for retirement saving. This represents decades of lost growth potential, boosted by compound interest. However, the good news is that you still potentially have 20-30 years left to make up for lost ground. This could be enough time to build up a retirement pot, increase your National Insurance Contributions (NICs) and adjust financial goals in light of up-to-date information.
Many people in their 40s reach their peak career earnings – which can help with setting more money aside for retirement. You may also have been on the housing ladder for some time, with a significant equity stake in your home. However, expenses are likely also to be higher. Those with children, for instance, may find much of their income going towards education, childcare and other large expenses (e.g. electronics) – thus eroding your ability to save. Your 40s is also when divorce rates are highest; typically very expensive.
Review your pensions
By your 40s, you may have already had several jobs – building various pension pots along the way. Therefore, it is a good idea to track them all down (perhaps using a spreadsheet). After all, there is about £400m in unclaimed pension savings just sitting out there. Could some of your savings be amongst them?
Once you have a clearer picture of your workplace (and personal) pensions, it could be worth considering consolidation – i.e. combining some, or all, of them into one pot. This can help lower your fees, widen investment opportunities into other funds and make things easier to manage. However, you will need to review each scheme carefully to see if it is worth keeping. Some, for instance, impose punitive exit/transfer charges which can affect the financial logic. A financial adviser can help you sift through this information and come to a good decision.
Remember the State Pension
The State Pension forms a crucial part of most retirees’ income. In 2021-22, the full new State Pension amounts to £179.60 per week (£9,339.20 each year). Given that a single person will likely need at least £10,900 annually to cover minimum retirement expenses, the State Pension goes a long way to support this. You need at least 35 years of qualifying NICs on your record to get your full State Pension entitlement.
For many, many qualifying years will have been naturally built up through employment. This is because NICs are made via your payslip using the PAYE system, under the UK auto enrolment rules. However, others may have fallen behind due to career breaks. Again, it can help to review your NI record with a financial adviser to determine the best way to get the best State Pension entitlement by the time you retire.
Your contribution plan
By this point, it should be clearer where your current retirement savings stand. Now, it can help to ask: “How much do I need for retirement, and what contribution plan do I need to achieve it?” Having a target number in mind – e.g. an annual income – can help provide focus for your goals. For instance, perhaps you want to generate £20,000 per year in retirement (in today’s money). You will also need this income to be sustainable over, say, 30 years or more until your death. Some of this income may be covered by your State Pension, but much of it will also need to be covered by your own savings.
This is where having a monthly pension contribution plan can help; to help ensure your costs are covered in retirement. The amount you need to save in your 40s will vary depending on your personal goals and circumstances. If you want a “luxurious” retirement where you spend, say, over £40,000 per year, then you will likely need to save far more than someone who is happy to live on £20,000 annually. If you have expensive personal debts to settle in the short term, then you likely will want to focus on settling these before increasing your contributions (as these will erode your income significantly in a short space of time).
Conclusion & invitation
Are you interested in talking to a financial adviser about your financial planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
You can call us on:
Liverpool Office: 0151 708 7616
Manchester Office: 0161 401 0991
Chester Office: 01244 960 039Or email via: [email protected]