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Can you afford to retire when you want to?

The Financial Times logoThe Financial Times 5 days ago Lucy Warwick-Ching
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Andrea Woodhouse, a 57-year-old lawyer at Aviva, wishes someone had sat her down in her twenties and told her to put as much money into her pension as she possibly could.

“When I started out in my career I didn’t stop to think about how I would fund my retirement,” says Ms Woodhouse. “I was focused on saving for a house and then on paying the mortgage. But had I started saving earlier — even just a small amount each month in my twenties — I would have a lot more choice over when to retire.”

She is one of millions of people in their forties and fifties facing difficult decisions about spending and savings as they start to think about what their retirement could look like.

“If I’d known more about the benefits of saving into a pension — the fact that most employers match employee contributions — I would have started saving into a pension earlier,” says Ms Woodhouse, who finds herself in the difficult position of having to pay for her youngest child’s rent at university but has also had to take out a loan to build an annexe on the side of her home for her elderly parents to live in.

a person standing posing for the camera© Provided by The Financial Times In a report this week, “The UK’s mid-life workforce: navigating uncharted waters”, Aviva sets out the challenges facing this cohort of workers, and what can be done to tackle them.

Carrying out a financial healthcheck is a measure that both companies and the government support.

Aviva offers staff a mid-life MOT from the age of 45, designed to encourage them to consider aspects of their work, wealth and wellbeing.

Alistair McQueen, head of savings and retirement at Aviva, says such tests are proving very popular among workers who want to “ensure they are on track for retirement”. However, he predicts that about 5m UK workers over the age of 45 will not be able to retire when they would like to.

Advisers say it is vital that people in this age group conduct an in-depth assessment of their finances if they are to achieve their financial goals.

Anna Murdock, head of wealth planning at JM Finn, says: “Generation X are often referred to as the ‘sandwich generation’ as they’re being squeezed at both ends — caring for their ageing parents while dealing with their own children at the same time.”

“They may have had children later in life and these children are staying at home longer as the cost of property rises,” says Ms Murdock. “Equally, increased life expectancy can mean their parents are living longer, but with greater likelihood of complications such as dementia.”

Gallery: Money blunders people make in their 40s (GoBankingRates)

Vera Zvonareva et al. taking a selfie: Avoid These 11 Money Mistakes People Make in Their 40s

Claire Walsh, head of advice at Schroders Personal Wealth, agrees. “Whilst we regularly hear that baby boomers are the wealthiest generation that has ever lived, this does not come without its problems and people in their sixties are arguably navigating a precarious financial tightrope,” she says. 

She says that until people have a clear understanding of their pensions and what they might be worth, when they will be payable and fit this into their overall financial picture, it is hard to know when someone can afford to retire or be sure that the money will not run out in retirement.

Alongside pensions, property is a key consideration for these mid-lifers — especially those who have invested in buy-to-let properties.

“Owning rental properties is less attractive from a tax perspective now, so it’s worth looking at the possibilities of selling one or two and setting up an investment portfolio, making use of any relevant tax-free allowances,” says Ms Murdock. 

Inheritance is another key area for these individuals to think about. Although this might not be top of mind yet, advisers recommend that people review their gifting strategy to children. For example, JM Finn says it might be preferable to invest in Junior Isas for the children rather than a pension as this will allow them to access the funds when it comes to putting down a deposit on a property.

Part of identifying how much individuals should save for a life after work is to identify how much is needed in the short term to help children with education, housing and any other helping hand they would like to give them, says Svenja Keller, head of wealth planning at Killik. 

Gallery: The ages at which people around the world really retire revealed (Lovemoney)

a man wearing a suit and tie: The official age of retirement is creeping upwards in most countries as governments try to balance pensions and stretched public finances. But while many governments want us to work until we are 67, the age that people are actually retiring is often lower than you might think. Using the latest OECD data (unless specified) we reveal the countries that actually work the longest.

“The questions they should ask themselves are how much can they afford to do and what takes priority?” says Ms Keller. She also suggests asking how people will be setting the money aside — in the children’s names or in their names, what tax-efficient savings vehicles are available and whether they can use them.

The whole topic of intergenerational wealth transfer becomes relevant for 40 and 50-year-olds from two sides, as they stand to inherit from their parents and start to think about passing on assets to their children. 

“Quite often, a good option is to ‘skip the generation’ and ask parents to gift directly to their grandchildren,” says Ms Keller. “This would remove one level of gifting from an inheritance tax perspective.”

Advisers suggest clients put their money into different pots to help them think about risk. Saving for things such as school fees or a house extension that are due in the next four or five years might go into short-term savings. But money for retirement — with a longer saving period — can be in riskier assets such as investment funds.

Finally, experts say this age group should review their protection policies including life assurance and income protection. 

“People may have children and they are likely to have an outstanding mortgage, so they need to make sure that everything is properly covered,” says Patrick Connolly, a chartered financial planner at Chase de Vere. “Similarly you may have built up assets and so need to have an up-to-date will in place, especially if you have children.”

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