Do you remember those youthful days when all you had to worry about was having enough money for the pub? Then when you got your first home there seemed so much too think about – all those bills. Cut ahead to at the arrival of your children and now you seem to spend money like water! As you hit your forties its time to get on top of this and take charge of the future. By addressing financial priorities now, you can help to ensure that your families is protected from the bumps of life and that when you come out into the field of retirement, things will be in place for a smooth ride.
Warning: Planning for the future may involve considering your own mortality! And here we jump from mid-life to end, but this is about taking charge and the security and calm that can come from that. A funeral plan is something you can put in place now to save your loved ones from the expense and distress of dealing with the details of organising your funeral.
There are numerous different offerings available, but a good place to start is by checking the list of providers who have registered with the Funeral Planning Authority and follow the strict guidelines. Make sure you get a deal you can afford, know what it includes and ensure it covers inflationary costs – you’re planning on sticking around for a bit! It’s also a good idea to make sure your family know you have this covered and keep the details in your files.
By this point in your life you really should have a will in place. There’s definitely a peace to be had from knowing that the important people in your life are protected and that things are set up as you want them to be. Shockingly, over half of parents with dependents do not have a will. As you plunge through your forties, you likely have some equity in your home along with any other resources that form your ‘estate’. Without a will, this will be distributed according to standard rules and not necessarily in the way you wish. A will allows you to divide your assets as you see fit, and to plan for inheritance tax and the like.
You can follow online advice and set this up yourself if your will is incredibly simply. However with something so important it is worth getting legal advice. The cost of this will depend on how complex your will is. Charity Will Aid has an arrangement with numerous solicitors that during the month of November, the solicitors will help provide basic wills in return for a contribution to the charity. So autumn may be a good time to address this issue.
Now to the golden years. You don’t have to have a pension. There are other ways to provide for your retirement, but when you put money into a pension, the government, and often your employer will too. The government will add 20% to your contributions (20% of the pre-tax amount), or 40% if you are a higher rate tax payer. So it’s a good way to make your cash go further.
Workplace pensions are pretty much the norm these days unless you actively opt out. But make sure you know the details of your pension and consider whether it is enough or if you could pay a little more. If you are not employed by someone else you’ll need to set up a personal pension to get the tax relief. It’s also good to note that the rules have changed in recent years giving you greater flexibility on how you receive the money on retirement. You no longer have to take an annuity – a regular payment through an insurance company. You can access the money from the age of 55, and you can take 25% out in a lump sum tax-free. But this means that you have more responsibility to make it last through your retirement, so plan wisely.
It’s good to save if you can. Whether it’s to help you kids, or for any unplanned eventuality. Many experts recommend trying to have at least 6 months of the household income in savings. To get the best interest rates (none of which are that great in current times) you’ll need to review what’s on offer and beware accounts that offer great deals for a year and then revert to a very low rate.
These days a basic rate tax payer can earn up to £1k of interest on any savings account tax free, and £500 for a higher rate payer – this is your personal savings allowance to encourage you not to spend, spend, spend. Beyond this, you’ll need an ISA to avoid paying tax on your interest, and these have a savings limit of around £20k per year.
There are different kinds of ISA available, with different levels of flexibility and risk, with some better suited to longer-term or retirement savings. You can mix your allowance up between the different offers, but you can’t roll it over into another year. A basic cash ISA can be a good place to start whilst you consider your options. Also a cash ISA interest won’t count towards your personal allowance.
It’s a big responsibility being a grown-up with a family to protect and cover in all eventualities. Especially when it doesn’t seem so long ago that you were dodging lessons for an afternoon in the pub. But by being a bit organised and practical now, you’ll make the most of your money and opportunities for the future. Now go enjoy!