What's the best financial advice for middle-aged people?

What’s the best financial advice for middle-aged people? That’s a good question.

There is an article doing the rounds on social media claiming that the WHO states ‘middle-age’ starts from 65 (given that, today, people in their 60s are as fit and active as 40-year-olds used to be in times gone by).65 is young We’re living a culture that values youth, so this is reassuring for those of us in that age bracket!

This article talks about people who are still at work, but who can see retirement starting to loom on the horizon. Perhaps pensions have become part of your dinner party conversation. Maybe you have a partner who is starting to fret about whether or not you’ll be wealthy enough to live the way you want when you eventually stop earning.

If you’re 40+, here’s an overview of the financial advice we’d give you.

What to watch out for

Many people have accrued between four and ten pensions over the years from different employers. Some might be legacy money-purchase pensions rather than final salary schemes, which means you might be paying higher charges than you need to.

Some of your pensions might be held with companies such as Phoenix or Reassure – these organisations are sometimes called “the graveyard of old pensions”. They bought up a lot of old pension schemes and rely on the lethargy of the pension-holder not to do anything with them until the last minute. Meanwhile, they don’t provide any advice or service at all, and you could be paying more in charges than you get in performance.

  • Have you looked at your private pension pots lately? Do you know how much you can expect? Will you need more? (Sometimes, we advise even wealthy clients to save a bit extra now so they can benefit in future.)
  • Have you worked out your state pension entitlement? Check it here (This is valuable guaranteed income and you can have anything between 10-35 qualifying years. If you’re part of a couple, it could generate £18K per year which is a nice start. You can pay Class 3 National Insurance to ‘top up’ any missed years.)
  • Do you know what age you can claim your pension? For women, it was 60, then 65 in order to equalise it with men. Now, it can be any age up to 68, depending on your date of birth. It may yet change again, a bit like a football being kicked down a path.

How much will you need?

The FCA assumes that spending in retirement is linear. But it isn’t a figure that increases 3% per year in line with inflation. We find that spending habits in retirement typically follow this pattern:

  • Initial retirees have health and energy, so they spend more money on travel and adventures
  • When their knees start to give out, long-haul flying no longer holds any attraction. At this point, they spend less money
  • When they start getting frail and can no longer look after themselves independently, they may move into a care home

What to do

We all like to think we’re immortal, but the pandemic has reminded us that we won’t live forever. Life and death have been in most people’s thoughts more than usual. But planning ahead doesn’t hasten your demise. Working out what you need for sustainable spending is simply wise financial planning.

A financial planner (like us) will compile a lifetime cashflow forecast for you.

We’ll ask what you want to do when you retire. Do you want to sit at home and bake bread or grow flowers? Do you want to travel? Perhaps you plan to downsize and move to a different part of the country?

How much you need to earn now depends on how much you’d like to spend in future.

Whatever you want to do, we’ll work out how much money you’ll need and build a proper plan to ensure you have enough to afford the lifestyle you’d like.

  • Pensions: Do you need to bring all your pensions together?
  • ISAs: Have you got savings scattered in different places?
  • Property: Is your mortgage paid off? Do you have other assets?
  • Borrowings: Are you debt-free?
  • Estate planning: Have you prepared your Will and Lasting Power of Attorney?

We can help get ALL your financial affairs in order.

Imagine the thought: “I can quit work now!” Our over-riding goal is to help you make that choice to be financially independent and live well in retirement.

So… what’s the best financial advice for middle-aged people?

For more information, please give us a call on 01435 863787.

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Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100