It is said that 50 is the new 40, and with people living longer, and expecting to be more active it is crucial to understand where you are financially if you are to enjoy life to the full without fearing that you will run out of money when you retire. Taking time to look at these things now, can give you time to make adjustments if needed before your income changes and your options are more limited.
With this in mind there are 5 things that every financially fit 50 year old should know:
1. How much money they need each month to pay their essential living costs
Filling out a budget planner is the first stage in understanding your monthly cash-flow. Take 10 minutes to sit down with a list of your direct debits/ bills and any other money going out each month. A free template is available from the peacetogether website here, which you can use as an ‘interactive pdf’ to add up for you, or print out and write in the data by hand.
For things that you pay annually, like car insurance or holidays, please take the total amount and divide by 12 to work out a monthly equivalent. Remember to put in loan/mortgage payments if you have them and minimum payments for any credit cards with balances on (usually 1-5% of balance plus interest)
You should end up with 2 figures – essential monthly costs (the red things added up), and non-essentials (the black figures).
The essential monthly income figure is the one that MUST be covered for you to have a roof over your head, with food and utilities etc. It’s what is often called a ‘survival’ figure.
2. How much they need for a comfortable lifestyle
This is the total figure from your budget planner above, when you add both together. So it may be that your figures are £1000 essentials plus £450 non-essential = £1450 to lead a comfortable lifestyle.
In practice most people would like to live above a survival level and have a comfortable lifestyle leaving money in their budget to pay for clothes, meals out and holidays. This amount will be different for each person and will change as you get older and naturally tend to stay home more and spend less on non-essentials.
3. Their State Retirement Age (SRA)
The State retirement age is the age from which you will receive your State Retirement Pension (SRP) providing you have sufficient National Insurance contributions. This has been changed over the last few years, firstly to being men and women to a uniform 65 years, and since then to move towards an increased SRA of 67, or 68 for those of us born after 1970.
If when you retire, you have 30 qualifying years you will receive the new flat rate SRP of £154 a week, which works out to just over £667 a month. If there were years when you were contracted out of SERPs, or not working you may get less than this due to a gap in your contributions and should check your entitlement using the gov.uk calculator to get a pension forecast. It is possible to ‘buy extra years’ by contributing voluntarily, and you would need to calculate the cost of doing this, against the increase in SRP (for life) that you would get for a complete record.
4. If they are expecting any additional income in retirement
If you have ever paid into a pension, privately or through work now is the ideal time to locate all the old plans and find out what they are worth. Some of them may be ‘Final Salary’ pensions where you have a guaranteed income in retirement – often from NHS/government schemes or big corporations (Boots, Dixons, Barclays, Sainsbury’s etc.). Other pensions may be a pot of money which can be used to buy an income in retirement, often called a personal / stakeholder/employee pension – and if you have moved employer several times, you could have a combination of these.
With recent changes in pension freedoms, it is sometimes advantageous to pool them all in a new modern pension that will give you the option of dipping into the money as and when you need to, and leave the fund to a beneficiary of your choice as well as being able to reduce the overall charges paid by only paying one management charge.
Even if you don’t have scheme/plan numbers it is possible for us to trace this money for you.
If when you add them up, the sum of your SRP and private pensions will not be sufficient for your needs in retirement, you may want to discuss with us strategies for meeting this shortfall in income.
5. Who will get their stuff when they die
It comes to us all one day, and not talking about it can mean that you miss opportunities to save money, reduce tax, and ensure that the right people get your home, possessions and other assets.
You should have filled out an ‘expression of wish’ form with any pension plan that you took out, to say what happens in event of your death – if not, you should contact them and request to do so now. You should also check that the beneficiary they have on file is not a previous partner, or indeed your parents if you started the pension when you were very young, and that it reflects your current circumstances.
Some older pensions provide a widow’s benefit to a surviving spouse (or civil partner) but if you are unmarried or divorced, the likelihood is that your pot will die with you. This may lead you to discuss with us moving the money to a more modern pension plan, where you can leave the fund to your choice of beneficiary.
Your life assurance policies should be put in trust, outside of your estate so that they can be paid quickly to your beneficiaries in event of your death, with no Inheritance Tax and without waiting for probate. If you have bought policies online, this will not have been done for you, and historically many advisers didn’t do so either.
You should have a current Will in place, so that your family is not left a financial and paperwork headache once you are gone. Wills can be set up simply using a qualified, licensed Will writing company for £149 (single Will) or £249 (pair of mirror Wills) to find out more click here.
