Your 50s is the most important period for retirement planning.
Retirement is no longer a dream on the horizon when you knock 50, it’s becoming a reality creeping up on you. Maybe you’ve been saving for decades, growing your pension slowly. Or perhaps life got in the way and now you are wondering if you’ve done enough. Regardless, it’s time to act. Retirement planning strategies for 50+ is different to those in their earlier years. This is when you want to enhance your pension, have multiple incomes, reduce risk and make sure your money lasts.
However, it’s not fully the end of any hope of making serious improvement in your retirement savings. Even minor tweaks can make a significant difference in your financial stability down the line. Use these retirement planning strategies for 50+, to help lead you to retirement years that are both comfortable and free of financial worry. Read our article on Financial Wellness in Retirement for more information.
Whether you have a seven-figure nest egg or no savings at all, this guide outlines five of the most important retirement planning strategies for the 50+ just to help you pension proof your retirement, protect your savings against inflation and build a retirement that works for you.
Retirement Planning – Make the Most of Your Pension Contributions
The great thing about being in your 50s is that you’re probably making more than you ever have. That means you can still grow your pension savings by as much as possible, while continuing to benefit from tax relief. And to be honest—when the government has free money in the form of tax relief, you should take advantage of it.
If employed, check the maximum contribution your company pension plan allows. That’s free money for your retirement; some employers will match your contributions up to a certain percentage, so if you’re not maxing it out, you’re leaving money on the table.
Furthermore, the UK government permits carry forward of unused pension allowances over the previous 3 years. That means that if you have not applied the full £60,000 annual limit in the previous years, you might be able to contribute more during this year and still avail tax relief.
If you are self-employed, then do not forget about Self-Invested Personal Pensions (SIPPs). This would be managed by the same person who manages all the investments within an ISA, but would still have the benefit of tax relief when you pay into them.
Taking full advantage of these opportunities can give you big boosts to your retirement savings during your 50s, and help set you up for strong finances in future years.
Investing in Different Asset Classes to Lower Risk and Increase Returns
But depending only on your pension isn’t a great plan. If you pile all your money in one type of asset — stocks, say, or cash savings — you could be putting yourself in harm’s way unnecessarily.
This is where diversification comes in. A sound retirement plan should have a mix of investments.
Stocks & Shares ISAs – These are great for those looking to add to their pensions as your investments will grow tax-free.
Bonds & Fixed Income Investments – They include oldest ones like Government bonds and index-linked gilts which act as support and lessen market risks.
Real Estate & Rental Income – Property investment can provide a reliable source of income during retirement.
Alternative Investments — One way that you can reduce your risk and have more sources of income is by using peer-to-peer lending and REITs. (Real Estate Investment Trusts – This is an option to invest in real estate but not actually owning the property).
While you want to reduce risk as you approach retirement, it is advisable to leave at least some of your funds invested in other vehicles. This can be index-linked gilts. This ensures your savings keep up with inflation, your money is therefore not losing value over time.
Inflation Can Reduce the Value of Your Savings — Here’s What You Can Do
One of the biggest challenges in retirement is inflation. At only 3% annual cost of living increase, the cost of living doubles every 25 years. That means if you assume there isn’t going to be inflation, and you don’t plan for it, your money is not going to go as far in retirement.
To guard against inflation, you can defer your State Pension. Every year you delay (after your official retirement age) adds 5.8% in extra state pension. That could mean an additional thousands of pounds of income over time.
Investing in dividend-growth stocks is another astute move. Many well established UK companies increase their dividend payouts over time, so your income will grow in line with inflation.
Also think about index-linked annuities or bonds. These are inflation-adjusted investments that preserve your purchasing power.
By carefully structuring your savings can help you provide a comfortable income in your later years that has the potential to keep pace with the rising cost of living.
Prepare For The Costs Of Healthcare And Long-Term Care
One of the retirement planning strategies for 50+ that is often overlooked is healthcare expenses in retirement. While the NHS delivers free medical care, there are other costs to be considered such as privately funded treatments, specialist care or care home fees.
If you have more than £23,250 in savings, you may need to fund your social care, in the years to come. Depending on the level of care you need, this can amount to thousands of pounds a year.
Here are some ideas for budgeting for these costs:
Private Medical Insurance – This may provide faster access to specialists and better treatment options.
Special fund for care – Saving a part of your savings dedicated only for the future health care needs.
Equity Release – If necessary, tapping some of your own home’s value to fund the cost of care.
It will enable you to plan for the future so that random medical expenses don’t derail your retirement savings.
Time Your Withdrawals to Save Some Money
One of the biggest fears of retirement is running out of money, and as a retiree, if you don’t follow a solid withdrawal strategy, you may be spending too much too soon.
If you tap into savings wisely, you won’t run out. One of the “rules of thumb” that is most well known is the 4% rule, which goes that if you take 4% of your savings out each year you would be able to make your money last for at least 30 years.
Invest in withdrawals, wisely. Rather than getting all of your content from one, do:
Tax-free withdrawals: ISAs go first — these can be withdrawn tax-free, so these should be the first pot you use.
Delay Pension Drawdowns – You pay tax on your pension if you draw from the pension so drawing the pension earlier does not allow it sufficient time to grow, tax free.
Income from Investments & Pensions — This is a pair of finances to reduce your taxes as much as you can & save as well.
A financial adviser can help you develop a withdrawal plan tailored to your needs that will help ensure you don’t run out of money too soon.
Take Charge of Your Next Chapter Now!
The best opportunity to build your retirement nest egg may be your final at 50. The decisions and choices you make today can materially influence your future financial well-being.
Retirement is not a time to be financially strapped, but a time to be free. Implement these retirement planning strategies for 50+ to create the robust, worry-free retirement that enables you to take advantage of whatever comes next!
So, what’s your next move?
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