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Financial planning in your 50s

Balancing finances in your 50s is a challenge, but with some careful planning you can set yourself up for a secure financial future.

| 8 min read

Personal finance in your 50s is important; if you haven’t already, it’s time to start thinking about your financial plan. Life will likely have settled down into a pattern, any children will have probably left home and become financially independent, and thoughts may turn to when you might look to wind down or fully retire.

Everyone’s path in life is different, with varying levels of resources, but there are some common priorities and steps to take at this life stage, whether you are focused on growing your earnings or establishing a strong financial plan. It can be confusing to know where to start, though, so here’s a list of key areas to focus on to help ensure your finances are in good shape for your 50s and beyond.

Five tips for financial planning in your 50s

1. Examine your balance between cash and investments

The amount of cash you should keep as an emergency fund will depend on your individual circumstances. A good rule of thumb is to have enough cash to cover a minimum of three to six months of living expenses, and any planned spending. This will help you if you lose your job, incur a major expense, or another unexpected event. However, if you have less secure employment or high expenses, you may need to keep more cash on hand.

It can be tempting to keep lots more in cash, and that is the right thing to do for short term spending and goals, but if the money is set aside for the longer term, it is likely to be beneficial to invest it in order to give it a better chance of growing ahead of rises in the cost of living.

However, your bank may not be the best place to keep this. Even with the recent increases in interest rates, its deposit rates might not be the best available. Smaller banks and building societies and “digital” banks compete for savers’ cash by offering better rates. If you don’t want the hassle of hunting around for competitive deals, an online savings platform can do the hard work for you. Depending on your near-term plans a mix of easy-access, fixed-term, and notice accounts can provide both flexibility and better returns.

See if you can find better savings rates with Charles Stanley Direct Cash Savings.

2. Use higher earnings to accelerate saving for retirement in your 50s

Your retirement provision should be a top priority in your 50s, and typically higher earnings can mean extra benefits from tax relief when you make pension contributions. It’s also a time when lots of people wonder when they can retire and whether they have adequate resources to commit to it. It can be hard to get a handle on this and it’s all too easy to underestimate how much capital you need to generate the income you require for the rest of your life.

To help you can use a pension calculator to estimate how much you need to save to reach your retirement goals. The calculator considers your current pension savings, your future contributions and your life expectancy. If you're earning than you were in your 30s or 40s, you can use this extra money to accelerate your retirement savings. One way to do this is make additional contributions to your pension, and to maximise investment flexibility consider a Self-Invested Personal Pension (SIPP).

3. Get a state pension forecast

The State Pension represents an important component of most people’s income in retirement. For some it’s their only income, or a large part of it. Yet confusion abounds about how much is paid, from what age, and the rules for qualifying. If you haven’t already done so your 50s is the time for figuring this out.

You can get a State Pension forecast from the Gov.uk website here. As well as checking your State Pension age, a forecast can tell you how much you could get and how it might be possible to increase it. You can also keep tabs on how your entitlement to the State Pension is building by monitoring your National Insurance (NI) contribution record, which again you can check at Gov.uk. Here you can see your history of NI credits received and any gaps in contributions or credits. It’s often possible to pay voluntary contributions to fill these gaps, either for a full year or a partial one where you have paid some NI but not enough to gain a credit. Follow the link for more information on voluntary National Insurance contributions.

4. Balance paying off your mortgage vs investing

The decision of whether to pay off your mortgage or invest your money is a personal one. There are a number of factors to consider, such as your risk tolerance, your financial goals, and your tax situation.

If you're risk-averse, you may prefer to pay off your mortgage as quickly as possible. This will give you peace of mind knowing that you have no debt to worry about, plus it will free up more money each month that you can invest or use for other purposes. However, if you're willing to take on some risk, you may be better off investing throughout your 50s for retirement. This could give you the potential for higher returns, which could help you reach your retirement goals. That’s especially the case for higher rate taxpayers making pension contributions where tax relief can give savings a big boost.

Alternatively, if you have a large home, you may want to consider downsizing in your 50s. This could release equity that you can use to fund your retirement or other goals. It can also be a way to simplify your life and reduce maintenance costs.

5. Start thinking about succession and inheritance tax planning

As you get older, it's important to start thinking about how you want to pass assets on to loved ones and inheritance tax planning. These days you don’t even have to be that wealthy for the taxman to take a slice of your estate.

Inheritance tax is paid on the value of an estate when the owner dies, but there are various ways to reduce a liability such as making gifts or setting up a trust. If you want to find out more around this, follow the link to find out how inheritance tax works. You should also make sure your will is up to date and that it reflects your current circumstances. Your will is a legal document that sets out your wishes for your assets after you die.

Give your finances a health check

Balancing finances in your 50s is a challenge, but with some careful planning you can set yourself up for a secure financial future. You also don’t have to tackle it on your own.

Having a conversation with a financial professional can help you to take control of your finances, giving you freedom and peace of mind. With our OneStep Financial Health Check you’ll get a consultation with a Financial Planner and a clear action plan to take home with you. Having a conversation with an expert can help you to take control of your finances, helping you find freedom and peace of mind.

Find out more

Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.

Do you have a tricky financial question?

Speak to one of our experts, who can provide you with a clear action plan to follow and enable you to take the next steps with confidence.

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