Give yourself a money MOT before you hit 50

Financial planning might not be at the top of your to-do list as you approach your 50th birthday, but the actions you take now could make a significant difference to your quality of life in retirement and overall financial wellbeing.

On the one hand, you could be approaching your peak earning years, perhaps enabling you to set aside more money for a retirement that may be just a decade or so away. On the other hand, you might be juggling multiple financial commitments and wondering how to make the most of a seemingly complex web of tax-efficient allowances.

Here, we look at five ways to prepare your finances before you hit 50.

1. Review your insurance

Salary tends to increase with age and with that can come a sense of feeling more financially secure. Like many people, however, you’ve probably ended up spending more as your income has risen – perhaps moving to a bigger home with a bigger mortgage, or paying for private schooling. It might seem counterintuitive, but having a ‘plan B’ is more important than ever. If you were to die or suffer a serious illness that meant you couldn’t work, it could cause real financial hardship for your family and entail a significant shift in their standard of living.

Taking out protection products such as life insurance, critical illness and income protection could provide your family with a financial lifeline should the worst happen to you. These products could enable them to remain in the family home, cover essential bills, and maintain some sense of stability for the children.

2. Focus on your pension

This is a good time to check whether you’re on track for a comfortable retirement. You might not know exactly what you want to do in the future yet, but having a rough idea is a useful start. A financial adviser can explain how much retirement income your pension is likely to generate, based on things like how much you’re currently saving, your life expectancy, projected investment growth, and inflation.

If your pension isn’t as big as it needs to be, there’s still time to take action. Increasing pension contributions from, say, 8% of salary to 15% of salary could have a big impact on the size of your pension pot at retirement.

Pensions are a really effective way of saving for retirement because of the tax relief you receive on personal pension contributions. Making a £1,000 personal pension contribution costs £800 if you’re a basic-rate taxpayer, £600 if you’re a higher-rate taxpayer or £550 if you’re an additional-rate taxpayer, with the rest topped up by the government.

3. Make the most of tax allowances

There are a whole host of tax allowances that can help you make the most of your money. Getting to grips with them now could help to boost your finances as you near the big 5-0.

For most people, the pension annual allowance is £60,000 or 100% of UK relevant earnings, whichever is lower. That’s the maximum amount you can contribute to your pension in the 2023/24 tax year before you have to pay a tax charge. Your annual allowance might be lower if you earn a very high salary. It’s sometimes possible to ‘carry forward’ unused annual allowances from the previous three tax years, but there are strict eligibility criteria and it is complicated, so make sure you seek advice.

Another tax-efficient way to invest is through an ISA. You don’t get tax relief on contributions, but you can withdraw money whenever you like, tax free. Income and capital gains on investments held inside an ISA are also tax free. You can save up to £20,000 into ISAs in the 2023/24 tax year.

Other allowances include the capital gains tax exemption, dividend allowance and personal savings allowance.

A financial adviser can structure your savings and investments so that you’re taking advantage of all the tax reliefs and allowances available to you.

4. Write a will and make a lasting power of attorney

Writing a will is a really smart move to make as you approach your 50th birthday. In fact, you’re never too young to write a will. Having a will ensures your money and other assets go to who you want and that your wishes are carried out as you intended. It could make a big difference to the future of those you care about.

It’s also a good idea to make a lasting power of attorney (LPA). This legal document enables you to appoint one or more trusted people to act on your behalf if you become incapable of making decisions. It allows you to plan for the future, can help to protect you and your family financially, and may reduce family conflict.

5. Get some smart advice

Your finances may seem a lot more complex than they were only a decade ago. Understanding where to invest, how much you need to save for retirement and what to do to secure your family’s financial future can be really difficult on your own – and that’s where getting some smart advice comes in.

Now is a great time to ask a financial adviser to review your finances, check you’re investing as tax-efficiently as possible, and advise whether you’re on track for a comfortable retirement. It could make a real difference to your financial future and give you the peace of mind that you’re making the right decisions for you. For smart advice that’s tailored to you, speak to one of our advisers today.

The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Information is provided only as an example and is not a recommendation to pursue a particular strategy.