Why planning for retirement should start in your 40s


To get the most out of it, retirement requires planning. Yet, many of us leave it until the milestone is just a few years away, by which point it may be too late to make changes that are potentially needed.

While you may have been saving into a pension since you started working, you may not have given much thought about what your contributions actually mean for retirement. Often in your 40s, your financial focus is on other areas, perhaps you’re paying off a mortgage or supporting children through education. It can mean thoughts of planning for retirement are far from your mind. But it’s the ideal time to start thinking about what you want to achieve in retirement and how to go about it.

If you’re in your 40s now, retirement may present some challenges other generations haven’t had to contend with:

Fewer Final Salary pensions: Many from previous generations have benefitted from attractive Final Salary pensions, providing some security for retirement. However, as the cost associated with operating Final Salary pensions has increased, there are fewer on offer today. As a result, you may not have the same level of pension benefits as previous generations. While some steps have been taken to fill this gap, such as auto-enrolment, it may have come too late if you haven’t benefitted from a Workplace Pension already.

Individual Responsibility: As Final Salary pensions have become less common, the responsibility for creating a retirement income has shifted towards individuals. Coupled with this has been the introduction of Pension Freedoms in 2015, allowing retirees to access savings in a pension flexibly. It means it’s increasingly important to be engaged with your pension and how it’ll fund your lifestyle.

Impact of the financial crisis: The effects of the 2008 financial crisis may impact on your overall retirement savings too. Firstly, investments may have underperformed during the immediate years following the global crisis. While investments have largely recovered from losses, those few years where values dipped can have an effect. For a decade now, interest rates have been low, impacting cash savings, and wages haven’t grown in line with inflation.

Funding longer retirements: On the face of it, a longer retirement certainly doesn’t seem like a bad thing. However, as life expectancy has increased, it means your retirement savings need to stretch further. Even just a few more years in retirement likely means your target savings need to grow by tens of thousands of pounds. On top of this, more retirees are finding they need to pay for the cost of care in their later years, something that should be factored into your financial plan.

The benefits of planning for retirement in your 40s

Despite the challenges of retirement planning, it is still possible to achieve a comfortable, fulfilling retirement. Starting the planning process as soon as possible can help turn your retirement dreams into a reality. Don’t wait until you receive your government ‘wake-up pack’ to start thinking about your life after work. Engaging with long-term financial planning in your 40s has many benefits.

1. Ensure your expectations are realistic

You may have idly thought about the retirement you’d like to enjoy but is it a realistic dream? Planning your retirement sooner can help put your expectations into perspective and demonstrate what will be possible with your current savings. It’s also an opportunity to think about the overall lifestyle you would like once retired and how a pension can be best accessed to allow you to build the retirement you want.

2. Change your strategy where necessary

Once you’ve thought about your ideal retirement, it may become apparent your current savings aren’t going to deliver the funds needs. The sooner you realise this and take action, the better the chance of getting back on track. Investments and the effects of compounding mean increasing pension contributions over a long period, even if only slightly, can have a big impact on the final value.

Alternatively, you may discover that your savings exceed what’s necessary, allowing you to build on your dream. If you’re not sure where your pension is currently invested, now is a good time to review the portfolio and level of risk.

3. Understand when you can afford to retire

You may have a point when you want to retire in your head already, but again you need to think about whether this is realistic. Keeping track of how your retirement savings are building up and investments are performing gives you a better understanding of when you can afford to retire and the lifestyle that’s possible.

4. Feel confident about your financial future

Some approaching retirement feel apprehensive about their future, including how financially secure they are. The more engaged you are with your pension and understand how it’ll be used to support you, the more confident you’ll feel. It means you can focus on really enjoying your retirement years.

Please contact us if you’re looking for support with retirement planning, whether it’s still a few decades away or just around the corner.

Please note: A pension is a long-term investment. Past performance is not a reliable indicator of future performance. The value of your investment can go down as well as up and which would have an impact on the level of pension benefits available.  Your pension income could also be affected the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.