Many people begin to think about their retirement savings once they approach their 50’s. This is usually when the kids have gone, the mortgage is nearly paid, and you start thinking about getting out of the rat race. Personally, I have started my retirement planning much earlier, but I want to retire early. For many people, this is not the case. They will carry on working into their sixty’s and possibly even their 70’s.
Typically people in their 50’s have more disposable income as they’re not paying for children. As such, they can focus on saving for their retirement, but it does beg the question, how do you go about saving for your retirement in your 50’s.
Maybe you should fund that retirement plan you had but neglected. What’s most important is that you understand your financial situation and what you need to retire with the lifestyle you want. Whether this is through the help of a financial blog or through speaking with a financial advisor, financial experts recommend you review your retirement plan at least once every two years.
Below are six things you need to make sure you’re doing to have the retirement you deserve.
Write a Will
Arrange your power of attorney by choosing a representative to make decisions on your behalf if you become unable to do so. In addition, write a will to determine where your assets and finances will go after you die.
Many people start thinking about money and their plans as they age. Planning for retirement may seem overwhelming. However, it is essential to manage income and expenses well as we head into retirement.
Set Realistic Goals
You need to understand what’s realistic when it comes to retirement planning. There is no point in setting the bar extremely high because it may lead to stress and frustration, two things you do not want to deal with in your 50s.
The best way to understand how much retirement will cost you is to think about the 4% rule. If you have a pension pot of £100,000, you can take out £4,000, and there will be enough money to fund your retirement for the rest of your life.
Think Tax Free
Investments grow much fast if you’re not paying capital gains tax on the growth. As such, make sure you maximise your ISA contributions and any self-invested pension plans or saving accounts.
Currently, for the 2021/22 year, you can save up to £20,000 into an ISA. Remember, this is 20,000 each, so if you’re married, this is £40,000 per couple. If you invested that money into a stock’s and shares ISA and made a capital growth, no tax would be due at the end of the year, and you have access to this money whenever you want.
One of the things that can prevent you from reaching your financial goals during retirement is debt. Consider tackling your debts early during the pre-retirement years to lighten the financial load post-retirement. The only significant debt you should be dealing with after retirement is your mortgage.
Many years ago, people used to have mortgage-burning parties to celebrate owning homes free and clear. These parties are becoming less frequent today due to higher mortgage costs and costs of living. More than half the retirees in the UK have a mortgage.
Having few or no debts during this planning stage allows you to focus on saving and investing. Although it may take a while for you to finish paying for your home, it is a worthwhile long-term investment.
Know What to Expect
Know the sources of income you are likely to have during your retirement. Knowing your sources of income during retirement will help you understand how aggressively you should save for retirement. You’re likely going to have multiple sources of income for retirement from Company, Private and State pension plans, ISA’s and other tax-free investments, and any other income-producing assets you have built up during your career. The real question is, how much are they all going to give you?
- Private Pensions – are the most common income source for retirees. Your current or previous employer should provide you with a benefits statement at least once every three years. The information can also be obtained from your plan’s administrator on request. The statement’s primary purpose is to provide you with an itemised account of your earnings and when they can belong fully to you.
- State Pension: If you have been contributing for more than ten years, you are eligible for a state pension in the UK. Social security benefits are usually based on an individual’s 35 years of highest earnings. This means that your social security benefits will likely increase if you continue working, however, it is possible to backdate pension contributions.
- ISA’s & Cash – remember, cash can give you an income in retirement. Use the 4% rule to determine how much income you can take per year without eating into your nest egg. For example, if you have £200,000 in a Tax-Free ISA, you could take out £8,000 per year, and the cash would remain the same for the rest of your life.
Sell Your Junk
Still short of funds for your retirement, start selling those things that you don’t need. Over the years, I’ve met many people who have downsized out of the family home and sold their junk, raising thousands.
Remember, there is value in everything. Make sure you have your things appraised professionally and by more than one person.
If you have maximised your savings, downsized your life and sold off all your junk, you’ll either have to work longer, accept less, or start a side job to increase your earnings.
Side-gigs can be online or offline and can be anything from blogging and other online jobs to dog walking and property development. The point is that it’s a second job that can earn you a second income that can bolster your retirement fund.
Personally, I like blogging and online jobs; however, if you’re going to follow me into working online, be very careful about spending money on courses. There are a lot of scams out there.
Retirement is a scary proposition, with the worst-case scenario being that you run out of money later in life. What would you do, if aged 75, you had no money simply because you did not plan for the future?