Planning for retirement in your 50s

In your 50s, it’s important to make retirement planning a priority if you haven’t done so already. At this age, retirement is no longer a distant concept, and time is short if your plans aren’t on track. This means it’s crucial to think about your retirement income goals and the steps that you need to take to achieve those goals. With that in mind, here’s a look at five smart retirement planning moves to consider making in your 50s.

Retirement calculations

One of the most important things to do in your 50s is to work out how much money you’ll need to retire comfortably. Here, there are many variables to consider, including the age that you plan to retire, your life expectancy, your income requirements in retirement, your expected investment returns, inflation, tax rates, and whether you qualify for the State Pension. Given the number of variables, this part of the retirement planning process is not always straightforward.

There are plenty of retirement calculators that can help you determine how much money you’ll need in retirement, however, these calculators have their limitations. For example, they may not consider taxes. As such, it can be sensible to speak to a qualified financial planner who will be able to provide you with more personalised advice.

Once you have worked out roughly how much money you’ll need to retire, you can then determine whether you’re on track to reach your goals. You can do this by working out how much money you have saved for retirement now across your various pension, investment, and savings accounts, and projecting your total retirement savings into the future.

If you have multiple pension accounts, it may be worth considering a pension consolidation at this stage of the process. This can provide you with more clarity in relation to your overall pension savings, and make it easier to plan for retirement. You may also benefit from lower costs.

Pension savings

Many people realise in their 50s that their pension savings are a little on the low side. For example, the 2019 Close Brothers Financial Wellbeing Index found that 46% of UK workers aged 55 and over felt unprepared to retire, with 45% of people in this age bracket stating that funding their retirement was one of their top three money concerns . Luckily, in your 50s there is still time to boost your retirement savings significantly.

One of the most effective ways to grow your pension savings is to save money regularly into a Self-Invested Personal Pension (SIPP) account. This is a government-approved retirement account that enables you to hold a wide range of investments and shelters capital gains and income from HMRC.

The main advantage of the SIPP is that contributions come with tax relief. Basic-rate taxpayers receive 20% tax relief, meaning an £800 contribution gets topped up to £1,000 by the government, while higher-rate taxpayers and additional-rate taxpayers can claim an extra 20% and 25% tax relief respectively through their tax returns.

For 2019/2020, the annual pension contribution limit for tax relief purposes is 100% of your salary or £40,000, whichever is lower. However, you may be able to take advantage of ‘carry forward’ rules and make use of unused annual allowances from the previous three tax years if you had a SIPP open during this period.

Another option to consider is saving and investing within a Stocks & Shares ISA. Like the SIPP, this type of account allows you to hold a wide range of investments, and all capital gains and income are sheltered from the taxman. Each individual can contribute £20,000 per year into a Stocks & Shares ISA.

Asset allocation

Your 50s is also a good time to review your asset allocation. You’ll want to ensure that your asset allocation matches your risk profile now that you are getting closer to retirement.

As you move closer to retirement, it’s sensible to begin reducing your exposure to higher-risk assets such as equities. With retirement just around the corner, you don’t want to be overexposed to the stock market as there is less time to recover from a major stock market shock.

Your asset allocation is an issue that you’ll want to pay close attention to as each year passes in your 50s. If you are unsure about the most appropriate asset allocation for your age, it could be a good idea to speak to a financial planner.

Debt reduction

It’s also sensible to focus on reducing your debt in your 50s. The less debt you carry into retirement the better, and eliminating debt early could have a big impact on your overall retirement savings.

It goes without saying that higher-interest rate debt such as credit card debt should be prioritised and paid off as soon as possible. However, many people in their 50s also have mortgage debt so it can make sense to prioritise this as well and pay this off completely. This can free up a substantial amount of cash flow that can then be redirected into your pension.

Regular reviews

Finally, in your 50s, it’s important to review your retirement plan on a regular basis. Retirement planning is a continual process, and the more often you review your progress, the more prepared you’ll be for retirement and the more in control you’ll feel. At a minimum, aim to review your retirement plan at least once per year to ensure that you’re on track to achieve your goals.

To find out more about planning for retirement in your 50s, or if you have any questions about financial planning, request a call back.