Just as night follows day, it is an irrefutable fact that I am now firmly in my early 40’s! I often hear people complain about hitting the dreaded BIG 4 Ohhhhhh, but as I reached that milestone during that inconvenience that was the Covid lockdown, it passed without much fanfare! I will have to make up for that when I hit 50! In all seriousness though, many people use milestone ages to take stock of their financial planning. We get lots of new enquiries from people who are turning 30, 40, 50, 60 or even older. There is clearly something about hitting another zero on the clock that makes people think that it is about time they had a look over things, and we are always more than happy to help.
Quite often people in their 40’s are approaching their peak earning years so this is naturally a good time to take a comprehensive look at how things are sitting with their finances. This doesn’t mean that people in their 40’s should simply sit down and look at how their workplace pensions are performing (or even just start finding the old ones). It is a great time to think about and start figuring out what you actually want to happen with life, and this isn’t just in retirement.
Who really wants to think about retirement when you’re still trying to figure out what being a grown up is – or is that just me?
So, if you are in your 40’s (or in fact if you are any age) and you don’t have it all figured out then don’t worry because you’re not alone. Here are a few financial planning considerations to think about, so you can feel like you’ve got your life together (at least financially).
What do you enjoy doing now? And that is after you have sorted out the rest of the things in your life like family, kids, work etc. What do you, (and your partner) like to do for fun?
If you had the time, then what would you really like to try and achieve?
Sometimes this is the hardest part of financial planning – figuring out what you are aiming for. These can be simple things like getting up the mountains for walks regularly or even a few BHAGs (Big Hairy Audacious Goals) like trekking to the South Pole, climbing Kilimanjaro or mastering the game of golf (which is impossible!). It took my long-suffering wife, Helen, and me a while to figure out that when we have stopped working, and the boys are off the payroll, then we would really like to spend a year living and travelling in Spain (and not the touristy parts). This may or may not happen, as life can get in the way of the best laid plans, but it is what we would like to do if we can and we are planning towards that (just don’t ask me to start speaking Spanish in our next meeting!).
Whatever it might be, figuring out what might make you happy is the key to starting to take stock of your financial planning (call it setting your objectives, aims, ambitions or goals if you want).
Planning on how to get there!
The next step is working out how to get to where you want to be – creating a roadmap showing you the way. This is where you look at everything that could impact all your future plans and start being intentional about your choices. Working with your financial planner to create a financial plan is the way to start pulling this together. And this is where you will begin to gain some context about where you are now and where you could be in the future, by making some changes and again being intentional about choices.
Here’s some things that we cover in your financial planning:
Retirement planning:
You need to have a clear idea about how much you’ll need to save to be able to live the life you want in the future . Knowing what you have already is so important as well because you need to make sure that it is doing what it should be – driving your financial plan. It’s important to consider the state pension (click to find out how much your state pension might be) and any other sources of future income, such as a private pension, rental income, savings & investments or potentially downsizing.
Protection:
Having a great looking financial plan is great. You can see what will happen if you stay on the same track or if you make some planned changes. But what about when the unexpected happens. For most people the biggest threat to the success of their financial plan is their ability to work. What would happen if your ability to work was taken away from you suddenly. What happens to your family and their security if you died? Let’s be real, no one really wants to think about this.
In your 20’s every person has Superman Syndrome – “I am invincible and it won’t happen to me!”. But from your 30’s onwards there is generally more to lose and whilst people might occasionally think about these things, very few take any action. So taking the time to consider what would happen if…. , and then following it up is very important when thinking about your financial plan.
Debt management:
Have a plan to paying down debt. If you have high interest debt (bad debt), such as credit cards or high interest loans, then it is important to reduce them as quickly as possible. Review interest rates and make sure you are getting the best deal possible. Transfer credit cards to a 0% Interest Card if possible.
After you have cleared the first of these bad debts (usually start with the smallest amount or the highest interest rate) then keep the monthly payment at the same level and pay down the next one. It is like building a snowball – once you get some positive momentum it becomes easier.
Once you have cleared down the bad debt you have the option to funnel some more money towards –
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- Reducing down the level of good debt (long term low interest debt like a mortgage) or
- Saving / investing to help provide for your future or
- A mixture of both – it all depends on what life you want to live
Tax planning:
Review your tax situation to ensure you’re taking advantage of all the tax reliefs and allowances available. This will include ISA and pension contribution allowances. Depending on individual circumstances, it may even mean the use of other tax-efficient investment wrappers such as Lifetime ISAs, VCTs, EISs, Investment Bonds or Trusts.If your spouse / civil partner doesn’t work then you might be able to transfer some of their personal allowance (up to £1,260) to yourself so that you save £252 in income tax.
The thing here is to be aware of the various tax efficient allowances and reliefs that are available because it can have a big impact on your financial planning and if you don’t use them then they’re usually lost. And who really likes giving more money to the government?
Estate planning:
If you died then what do you want to happen with everything you own? Writing a Will means that your wishes are clear and the people you want to benefit will (beneficiaries).Also consider setting up an Enduring Power of Attorney (in Northern Ireland) as this will mean that there is someone who can make certain financial decisions on your behalf if you are unable to (possibly due to a loss of capacity e.g. car accident).
Also make sure that any life policies are held in trust. A life policy in trust means that the right person will get the money that is needed at the right time (and not having to wait for probate on your estate). You are basically gifting the proceeds of the life policy to the trust so that it doesn’t form part of your overall estate when you die (and means that it isn’t liable to Inheritance Tax). Also make sure beneficiaries are named in the trust so that the right people get the money.
There are definitely some things that you need to think about to ensure that your financial planning is on track in your 40’s (or indeed any age!), but the main thing that I want you to take away from this is to just start.
Start thinking about what you want from life and let’s start the process of getting you there.
And remember, it’s never too late to start planning for your financial future, even if you’re still figuring out what you want to be when you grow up.
Investment Markets can go down as well as up, and you may not get back the full amount you originally invest. This post is for information purposes and you should seek personalised advice in relation to your tax, financial and investment planning needs.