Saving for retirement in your 40s
There may be a multitude of reasons why you have arrived into your 40’s with little or no pension provision. However you now really do need to address this and start to get some plans in place.
Whilst your 40’s might be a more advanced time of life to be thinking about your retirement plans, it’s by no means too late.
With the increase in state pension age you may have another 28 years until you’re eligible for a state pension, so you’ve still got plenty of time to save for a comfortable retirement.
They say that life begins at 40 and if you started work at the age of 18, that means you’re not even halfway through your working life! That might be a sobering fact, but it does reinforce what I said earlier: it’s never too late!
The fact you are starting a little later though means that you will need to be a bit smarter with your choices.
Using retirement calculators to work out the level of income that you will require and then working that back to how much you need to pay would be quite a useful exercise to undertake.
Alternatively using the expertise of a qualified financial planner would probably be a better option at this stage.
Life in your 40s
The positive news is that you should be starting to reach your peak of earning capacity which means that you should have more money available to start funding for your retirement.
If you are a higher rate tax payer you will also benefit from the generous tax reliefs that are currently available.
You will also have the opportunity to make large contributions and you can even go back to previous tax years and “mop up” unused pension allowances.
Saving for your retirement should now be high on your priority list, because while it’s not yet too late to save for your retirement, if you leave it too long it soon could be.
How do I save for retirement at 40?
If you do not have reasonable funds at this stage, it goes without saying that you need to start saving as much as possible.
Your 40s is not too late to make substantial retirement savings, but to make sure you have a significant amount in your pot you will have to put more in each month than if you were younger.
However, it’s also vital to start thinking about maximising what you already have.
You should factor in other savings and investments when you start to consider how much money you will need in retirement.
Most people at this stage will own their own property – this is probably the biggest asset you have at this stage and this can also be taken into account when considering retirement plans.
You can release equity from your property by either downsizing or using equity release.
Yet along with looking at your current assets, you might also be able to increase your retirement funds by tracking down pensions from previous jobs that you’ve forgotten about.
Your 40s is the ideal time to take action and find these pensions.
Once you’ve tracked down any pensions make sure to review their value, performance and costs, and consider moving them to another pension scheme if they haven’t been performing well.
You can find out about the benefits of pension consolidation HERE
How should I invest my money in my 40s?
In terms of your investment strategy, you may need to take increased investment risk to try to make up for the delay in getting started.
I would strongly urge you to take professional advice here as there is a big difference in taking increased investment risk as opposed to investing in non regulated high risk schemes.
Pros and cons of starting a pension at 40
- You will likely be established in your career and earning more than when you were in your 20s or 30s, and as such you may have more money available to save into a retirement pot.
- You are more likely to be a home owner and could consider using your property to help fund your retirement.
- The later you start contributing into your pension the less you will have when you retire, making it more difficult to enjoy a comfortable retirement.
- You will have to put more into your retirement savings each month than if you were in your 20s or 30s to gain a substantial retirement pot.
- Your pension investments will have less time to grow and therefore you may need to take more investment risk.
So in summary, even though you may not be in exactly the position you would like to be it is not too late.
Seeking the advice and guidance of an experienced adviser at this stage though could be invaluable.
I am passionate about helping my clients live the best life they can with the money they have available. Having a robust and achievable plan for retirement is something that we can definitely help with.
For help in getting your plan started you can book an initial discussion HERE.