Why you should start planning your retirement at 40

Why you should start planning your retirement at 40

If you’ve already, or are about to, hit the big 4-0, now’s the perfect time to start planning your retirement. You’ll probably have around 20 years of work behind you, where you’ve hopefully paid into one or more pension schemes, with about the same amount of years left to work. You’re at that perfect midpoint where you can review what you’ve done so far and think about what you need to do to achieve your retirement plans.

Start by working out how much you’ll need to live on in retirement

Sit down and think about what will be important to you when you retire. Whether it’s regular holidays, eating out twice a week or a new car every few years, add up how much these will cost you together with your regular household bills. Once you know the total yearly costs, just add them up and times it by 20-30 years.

Work out how much you’ve saved so far

It could be that your future retirement income is in different places, such as workplace and personal pensions, savings accounts, and various investments. Will everything give you enough to live your dream life when you retire? Don’t forget to add in how much you’ll get per year for your state pension too.

Make adjustments if you need to

Hopefully, all your investments are on track and will grow nicely over the next two decades. If they’re not, think about making extra contributions to your pension plans if you can, or maybe switching part or all of your pot to a better-performing scheme. You could also transfer your pot or put them all together if you’ve got more than one. Just bear in mind, you might lose extra benefits offered by your current provider if you do this.

Delay taking or don’t take all of your tax-free sum

This is one way to make your pension pot stretch a bit further. Not taking your 25% lump sum straightaway ot in one go could help your investment last longer or allow you to take more as a regular income. This isn’t something you need to make a decision on now, but it’s something to think about as you get nearer to retirement.

Could downsizing be an option?

When you’re retired, you might not need such a large property, especially if you have grown up children who move out. Moving to a smaller property can give you a nice lump sum to enjoy, while equity release could be worth considering if you want to stay in your home but release some money from it.

‘Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits’.

Start clearing debts now

It’s not unusual to owe money on credit cards, loans, or car finance, as well as a mortgage. They can soon add up and take a big dent out of your monthly income. This is likely to be reduced when you retire, so the more you can pay off before then the better.  Loans, mortgages, and other fixed-term finance will have a definite end date, so you know when they’ll finish. With credit cards, it can be harder to know how much you need to pay to clear them by your retirement date, but there are online tools and websites that can help you.