“The problem with the future is that it keeps turning into the present” Calvin & Hobbes
If you are one of the many who were so focused on the day-to-day during much of your working life you might well have started to think about your retirement nest egg and realised it might not be enough.
Our 40s tend to be when our careers and earnings start to take off but it also coincides with the busiest and most stressful time of our lives; we have career aspirations we are trying to fulfill at the same time as trying to raise a family and cover mortgage debt.
We are income rich but time and disposable income poor.
It is little wonder then that the future might be put off for today. Not necessarily because we’ve taken a hedonistic attitude to life but because we are too focused on the here and now to plan for the future.
If you are reading this and it describes your current state, making the effort to automate your long-term savings now will pay dividends in the future.
But, if you are now through that phase and are in a position to give your retirement planning a helping hand to plug any gaps that may exist.
Here’s a 6 point action plan to get you back on track.
1 – Find Spare Money Wherever You Can.
If the kids have flown the nest you may have reduced some bills that can be redirected to your retirement planning.
It might also mean making some difficult decisions about giving up some of life’s luxuries now so you can have more of them later.
2 – Make Your Money Earn Its Keep.
This can be into pensions so that you can benefit from the additional tax relief provided by HMRC or into Share ISAs if access is more important to you.
Better still, you are able to maximise your contributions to both.
If you are a business owner you could reduce the salary and dividends you are paying yourself in exchange for company pension contributions (it will also reduce your corporation tax bill).
If you are employed it might be that your employer will contribute more if you do. Or, you could reduce your salary in exchange for higher employer contributions.
Having spent much of 2020 working from home you may well have found your outgoings have reduced which could also be put away for the future.
3 – Take Some Risk.
The amount you contribute to pensions and ISA will have the greatest impact on your future wealth but it can be given a helping hand by your investment strategy.
If you have more than five years before you intend to draw on your investments you can afford to be more aggressive with how you invest, which means a higher allocation to global equity markets.
4 – Don’t Fund Someone Else’s Pension
The higher the costs you are paying for your pension and investments the more it is going to fund someone else’s retirement rather than your own.
In the world of investing there is no correlation between how much you pay and the returns you receive. In fact, it is negatively correlated. So, reduce your fees as much as you can. Read this article for an explanation of how pension charges work.
5 – Trying to Run with a Ball & Chain
It might be that you have outstanding mortgage debt. The sooner you can clear this the sooner you will be financially independent.
How you do this will depend upon a number of factors. You could overpay the mortgage each month which will give you certainty about how quickly it will be eroded but your mortgage provider will probably limit the amount of overpayment in any one year.
Also, paying off mortgage debt is an opportunity cost; with mortgage rates so low your money could be working harder by being invested instead. The accrued fund can then be used to pay off any outstanding mortgage at the end of the term.
6 – You Are No Longer Bullet Proof – Protect Thyself
When we are young we like to think we are bulletproof and, unless we are unfortunate, we tend to stay fit and healthy.
However, as we age health-related issues start to crop up. If we don’t protect ourselves financially this can be a double-edged sword; not only do with have health complications but if it means a loss of earnings it can mean a hit to both our current and future lifestyles.
By making sure we have enough in an emergency fund to cover short-term gaps and through passing the risk of lost earnings onto an insurance company it means that our future selves don’t have to suffer too.
For all of us there are two really important people in our lives who aren’t family members: our current selves and our future selves. By taking the time to follow these 6 steps we can make sure both are cared for.
If you want help planning your retirement contact me.
Photo by NeONBRAND on Unsplash