Age 50 appears to be a trigger for many to begin seriously thinking about their finances. But what action should you take when you are gripped by ‘age 50 financial fever’?
Throughout our 20s, 30s and even 40s, for most of us, planning our long-term finances, and thinking about retirement in particular, isn’t a priority. In our 20s, life appears to stretch out in front of us forever, and money is for spending. In our 30s, despite earning more, many have also gained commitments in the form of mortgages and family, and finance is perhaps more about survival than saving. By our 40s, the idea of planning our long-term finances is a notion that might flit in and out of our minds, but it still feels a long way away – we have built up some pension funds, and have some savings here and there, so we’re doing something, although what it might mean in terms of an income in retirement we have no real idea.
Then 50 hits, and it all seems to change. Until that point retirement was a vague concept, a long, long way away, much like how Prince’s 1999 felt when it was released in 1982. But now it suddenly feels within touching distance. Those indecipherable pension statements are becoming more relevant, although no less indecipherable. Those ISA valuations are of more interest, although we may still not be entirely sure what ‘ISA’ stands for. And saving money becomes a higher priority, something our 20 year old selves might not recognise.
In our experience as financial planners, age 50 appears to be a prompt for many to begin thinking seriously about retirement. Indeed, the vast majority of people who approach Carbon for a chat about their finances are over 50. And data from The Citizens’ Advice Bureau reflects this with nearly half those seeking financial advice from CAB being 50 or over.
There are, of course, practical reasons why age 50 can be a prompt to begin thinking about finances and retirement. At this age many are at the peak of their earnings potential, expenditure relating to children may have begun to recede as they finish education, and the mortgage may have been tamed, so there may be a bit of money left over each month.
So what should we do when age 50 financial fever grips us? The first thing is not to panic. The second is not to immediately start throwing money at pensions and investments – that may turn out to be the right thing to do, but how do we know how much to save, how hard the money needs to work, and when it might be needed?
Instead, take a step back and think what you are planning for; is it really retirement? For most of our clients retirement is no longer at age 60 and it is almost never a ‘pipe and slippers’ retirement. ‘Retirement‘ is probably not the right word, and some may even object to it, replacing it with something like ‘financial freedom’. Many want to know when they will have the option, financially, to give up the ‘big’ job.
If you do give up work, what would you do? What’s important to you? Would you start up your own business? Volunteer? Sail around the world for a few years? Go back to university? Look after the grandchildren?
Most would like to travel more, but what does that look like? Is it once a year or once a month? Is it the Caribbean or a caravan in Callander? Is it youth hostels or six stars?
And what about property? Would you ‘trade down’? Would you buy a second property in the sun?
Working out what you’re going to do in retirement is an absolutely crucial step, since what you want to do, ultimately, is to put a ‘price tag’ on your future lifestyle – how much money do you need to live the life you want to lead? From there you can work back and calculate what you need to do in terms of your finances now – how much you need to save and how hard it has to work. Only when you know what you are aiming for, can you really begin to take action to move towards that goal.
A good financial planner will be able to help you articulate what is important to you, what your future lifestyle might look like, and what its cost might be. Then, and only then, should you begin to think about pensions, investments and all these things which might now seem slightly more exciting than they once did.
Richard Wadsworth is a financial planner at Carbon, and age 50 is no longer looking so very far away… You can view Richard’s profile by clicking on his name, or contact him via email on email@example.com.