Maximising your savings and investments in your 50s

You know how the saying goes; ‘life is what happens to you while you’re busy making other plans.’

One moment you’re in your 20s/30s, getting established in your career, perhaps building a business and focused on buying your first home, maybe starting a family…and retirement seems a long way off.

But blink, and you’re looking at the wrong side of your 50th birthday, and retirement becomes a rapidly approaching reality.

Whatever happened to your grand plans for putting away a tidy sum in pensions and investments?

Maybe you have diligently saved for the last 20 to 30 years. Maybe not. Maybe somewhere in between.

Ensuring that your investments are working hard to secure the lifestyle you aspire to once you retire is crucial. By optimising your financial strategy now, you can confidently retire according to your personal goals and aspirations.

?

Establishing your retirement goals

You may have been thinking about your retirement savings target for some time. However, once you’re in your 50s, establishing a more precise goal is essential. Determining the amount you need to save for retirement involves considering the age at which you hope to retire, post-retirement activities, expected investment returns and inflation rates.

Obtaining professional financial advice will provide valuable insight into the longevity of your retirement savings, helping you evaluate whether you need to modify your objectives or saving strategies. By refining your retirement goals, you can work towards a concrete target and ensure a comfortable and secure future.

?

Evaluate your investment strategy and maximise your investments

Now is the time to reassess your investment portfolio to ensure an appropriate balance between risk and reward. The level of risk suitable for you will depend on your retirement funding plan and target retirement date.

If you plan to purchase an annuity in a few years, it may be wise to gradually shift your pension fund from equities to lower-risk assets like cash. This helps avoid a potential stock market downturn that could deplete your pension just before you need to buy an annuity.

On the other hand, if you intend to finance your retirement through income drawdown and additional savings and investments, moving to cash too early might result in your money running out sooner than expected. Maintaining some exposure to equities allows your portfolio the chance for long-term growth.

Remember that your retirement could last for several decades, during which inflation will decrease the real value of your savings and diminish your money’s purchasing power.

One way to counter rising prices is to stay invested in the stock market, as history demonstrates that it performs better than cash and outpaces inflation over extended periods.

?

Make the most of pension tax relief

Pensions are a powerful tool for saving for retirement, mainly because of the tax relief you receive on your contributions, which can significantly enhance your retirement savings.

When you make a pension contribution, the government provides tax relief, essentially free money. For example, a ￡1,000 pension contribution would only currently cost you ￡800 if you’re a basic rate taxpayer; ￡600 if you’re a higher rate taxpayer; and ￡550 if you’re an additional rate taxpayer (assuming you have at least ￡1,000 of income in the higher/additional rate bands).

The annual allowance is currently ￡60,000 for pension savings (though it can be lower in certain circumstances), and this applies to contributions from all sources (including any employer contributions). If the annual allowance is exceeded, you will be liable for a tax charge on the excess, but if you wish to save more than your annual allowance, you may be able to utilise unused allowances from the previous three tax years under carry-forward rules.

?

Maximise your savings allowances

There are several tax allowances you can take advantage of to maximise benefits of your savings. One is the Individual Savings Account (ISA), which currently allows you to invest up to ￡20,000 per year (tax year 2023/24) and enjoy tax-efficient income and growth.

ISAs allow the flexibility to withdraw from ISAs without paying tax, so they serve as a valuable income source for those planning to retire before age 55 (the current normal minimum pension age (NMPA) which increases to 57 from 6 April 2028).

Other allowances to explore include the personal savings allowance, dividend allowance and capital gains tax exemption. These allowances currently allow you to earn tax-free interest up to ￡1,000, depending on your marginal Income Tax rate. Additionally, you can receive tax-free dividends up to ￡1,000 (the allowance is set to reduce to ￡500 in April 2024) and enjoy tax-free investment gains up to ￡6,000 for the 2023/24 tax year (the allowance is set to reduce to ￡3,000 in April 2024).

Many people find the world of pensions and investments daunting, and working out allowances confusing. That’s why getting advice from a professional independent financial adviser is essential at this stage. They’ll help you to define your retirement goals, assess your current position and work out your next steps.

?

At Talis IFA, we understand that everyone’s idea of what a comfortable retirement looks like is different. That’s why we take a life first, money second approach, taking the time to get to know you, your lifestyle, and your retirement plans in detail before we start to look together into your pensions, savings and investment options.

Click here to find a Talis IFA.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.