Mid-Life Financial Planning Doesn’t Need to Be a Crisis

financial planning stress

Financial planning is daunting at any age. Still, the ongoing cost of living crisis has generated increased pressure for many middle-aged adults concerned that their retirement savings will not be enough.

Individuals and family members in their 40s and 50s often believe it is too late to begin planning, investing or saving – but this is not the case.

While most households have several financial responsibilities to manage, those obligations rise in middle age. Many have younger children, mortgages and full-time employment, which is why the stage is known as a responsibility peak.

However, with retirement perhaps only ten years away, this is an important time to evaluate your spending actions carefully and ensure you are prepared for future financial independence.

The Unique Challenge Of Financial Planning In Middle Age

Most mid-life individuals work hard and save as much as possible into a pension. They may also make long-term investment decisions and financially support their children and grandchildren.

A finance professional can help to craft a strategic plan, incorporating obligations and existing debts while creating a risk-appropriate approach to accumulating wealth for the years ahead.

The first step to financial freedom is to work on a comprehensive plan.

This process enables you to evaluate your income and outgoings, spot shortfalls in your investments or funds, and set goals that quantify how much you want to have available, when, and for what purpose.

If variances between your required retirement income and overall wealth or your investment return time frames do not align with your anticipated outgoings, now is the time to revise your finances or pick optimal investment structures.

Accountants and advisers suggest several steps to ensure you remain on top of your money without impacting your ability to enjoy your preferred lifestyle.

Mid-Life Financial Planning Advice

One of the most common reasons a financial strategy falls apart is that the individual does not execute the plan of action they have agreed to or created for themselves.

Setting spending goals or pension deposit targets is much easier on paper than in person, but changes to savings patterns take time to become a habit.

Committing to your financial plan is important because we spend or save habitually and need to rethink our behaviours consciously.

Another fundamental theme is to ensure a financial plan is reviewed and updated regularly. Most people experience changes to their finances and circumstances, for example:

  • Increased interest rates are linked to debts such as personal loans or mortgages.
  • Settling a mortgage, buying a second property or upgrading to a larger home.
  • Changes to family education plans, such as attending a private school, international college or top-tier university.
  • Differences in net income, investment returns, pension fund projections or secondary earnings streams.
  • Plans to relocate overseas or spend on a high-ticket item.

Having a solid financial plan does not mean that you cannot make these changes but that you should adapt your strategy accordingly.

Making regular pension deposits is always wise, but if your net income makes this challenging, it could be worthwhile to reduce those contributions temporarily.

Risk exposure is also part of portfolio management. Where the risks associated with specific investment products have grown or decreased, it could be a favourable time to balance excess risk with a more stable product or take a more aggressive approach to potentially plug a shortfall in funds.

Benefits Of Careful Mid-Life Financial Planning

Wealth does not remain at the same value. If inflation is higher than the interest rate earned, or the investment returns achieved, the real-time value of assets and money can drop.

Financial planning involves modelling budgets and future aspirations and aligning savings and investments to achieve those goals.

It also looks to protect wealth from unexpected events or sudden costs. Financial protection options could include insurance policies, natural hedges against inflation or contingency savings products.

Life insurance is one of the typical products mid-life planners consider since it can cover the full cost of a mortgage and pay a substantial lump sum to your family should anything happen.

Other products include income protection insurance, which provides cover if you lose your income.

With all these decisions, tax liabilities are a factor because adults in mid-life usually pay more tax than ever due to higher average incomes. In 2021 PensionBee estimates that taxpayers failed to apply for £2.5 billion in tax reliefs for pension contributions, available to people in higher and additional rate brackets.

You should review the allowances, tax reliefs and eligible expenses claimable to avoid paying unnecessarily high taxes or work with a financial adviser who can review your tax liabilities and recommend efficiencies.

Financial Planning During Market Volatility

The markets fluctuate alongside the economy, and global events such as soaring inflation, the Ukraine invasion and the Coronavirus pandemic have significantly impacted the performance of savings and investment products.

Investing remains an optimal strategy for wealth accumulation and a cornerstone of retirement planning, but some products may provide variable returns.

Fixed return investment funds are stable, but the returns achieved may be worth less if they are static and do not increase in line with inflation.

The correct actions depend on the products within your portfolio, your income and outgoings, and the financial cushion you have as a contingency. A wealth planner might advise you to leave products in situ if, over time, they are expected to deliver returns consistent with your original plan.

Alternatively, you could be advised to restructure investments to account for market instability or take steps to reduce your risk exposure linked to particularly exposed products.

How To Set Mid-Life Financial Planning Goals

The priority in mid-life is to maximise savings and opt for investment products aligned with your expected retirement age and required income.

Your strategy will be linked with your financial circumstances and depends on factors such as:

  • Whether you own a home and whether or not you have an outstanding mortgage secured against the property. If you pay off a mortgage, you may have less to contribute to retirement savings, but you may prefer to own your home outright and have a higher value asset.
  • Your debt levels. Short-term debt like credit cards and personal loans should be repaid as a priority because the interest you earn on savings will be far less than the interest payable on these accounts. Paying off debt can improve your net income, as you will no longer be budgeting for repayments and interest rates.
  • Health issues. Although most UK residents have the assurance of free treatments on the NHS, any significant health challenges could impact your ability to work and maintain a consistent income stream. Long-term healthcare costs for older relatives, such as care home fees, can also be a large financial consideration.
  • Support for family members. Some parents prioritise retirement savings, and others prefer to forego their wealth accumulation to help children pay for university costs and sometimes other expenses such as a deposit for a first home.
  • Working circumstances – when do you plan to retire? Will you receive a retirement bonus or a contracted payout? Are you expecting to retire from full-time work or transition to shorter hours?

The first step to financial planning is to itemise your income, outgoings and savings. Once you have a clear idea of your net income, you can calculate your retirement requirements and identify variances that require action.

Mid-Life Financing Planning FAQ

Why is financial planning so important during mid-life?

Adults in mid-life usually have higher income, tax obligations and responsibilities than at any other age. Many have mortgage debt and need to balance childcare responsibilities and living costs with creating stable savings and investment plans for retirement.

How do most people generate retirement income?

The most common options are state pensions, personal savings and investment products, private pension schemes, and individual retirement accounts.

How much should I have saved for retirement by 55?

General guidance is that you should try to save around seven times your annual income by age 55. If, for example, you earn £50,000 a year, you might aim to have £350,000 in retirement benefits, savings accounts and an investment portfolio.

But, of course, everyone is different. If you plan to sell your property, retire on a smaller budget, cash in other investments or assets or continue working past the standard retirement age, this target may vary.

Is it possible to retire early?

Astute financial planning can help you retire early – the sooner you start saving and budgeting, the more possible early retirement becomes.

Most people consider early retirement if they have repaid all of their debts, or are close to doing so, and have no significant financial obligations that command a full-time income.

So which is the safest way to save for retirement?

Your risk approach will depend on your age, expected returns and appetite for exposure, but most retirement savings are invested in low-risk products or savings accounts with guaranteed growth. Examples include high-yield savings accounts, securities and fixed annuities.

Below is a list of some related articles, guides and insights you may find interesting.

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