All You Need to Know About Investing in Your 50s

Once you reach your 50s, that big birthday celebration can feel symbolic as you edge closer to retirement and all life’s possibilities lie ahead.

However, less joyous is the prospect of retiring on a measly pension or being forced to work longer than you’d like because your nest egg won’t pay the bills.

The good news is that investment can be a great way to boost your budget, establish a strong portfolio, and give you thousands of great reasons to look forward to the decades ahead.

Let’s talk about retirement savings, pension investment, and why it’s never a bad idea to start being smart with your cash in your 50s.

Choosing An Investment Approach In Your 50s

Many people have a mixture of assets, even if you wouldn’t call yourself an investor – like an ISA and a pension fund.

You probably pay more into your ISA and make auto-enrolment minimum contributions or direct debit into your pension fund every month and don’t pay much attention to what’s happening with the fund.

Taking a look at your anticipated pension benefits can be a bit of a wake-up call, and no one wants to be wholly reliant on a minimal State Pension when they’ve still got time to do something about it.

At this stage, your focus shouldn’t be on savings products that are easily accessible and more on getting that retirement fund into a healthy position – and it’s a good move from a tax perspective.

However, making some proactive investment decisions could produce better returns than your pension, depending on your risk profile and the level of say in how your fund is managed.

Establishing Your Retirement Financing Gap

Step one is to think about the funds you expect to need in retirement and how well your current pensions cover the total.

You can make the process as complicated or straightforward as you like, but you need to think about:

  • Basic living costs
  • Holidays and travel
  • Car maintenance and buying a new vehicle
  • Home improvements
  • Eating out
  • Gym or fitness club memberships
  • Clothes shopping

Calculations vary, but basic living costs will usually be the bulk of any budget, at an average of £16,800 a year.

To cover everything on the list, most people are looking at a fund providing £40,000 a year, potentially more if they have debts, a mortgage or rent to pay.

Be conscious that UK life expectancy is 81 years old, so you want enough to keep you going for at least three decades.

Next, you need to evaluate all of your pensions with an up to date pension statement that sets out the total benefit, any lump sum withdrawal options, and a monthly forecast payment.

This process helps you see how close you are to your financial goals and gives you a clearer picture to develop an investment strategy that’ll meet your expectations.

Finding The Right Balance In Retirement Investing

Once you better understand your position, you need to think about income investments vs growth investments.

If your pension is healthy and will provide plenty of income for your living costs, but you need an earnings boost to finance holidays and luxuries, you’re in a strong position.

Where you’re reliant on your investments to increase your general earnings to cover basic expenses, it’s necessary to assess risk carefully. Although you want the maximum profit, you cannot afford to take a gamble.

Much depends on your circumstances – if you’re 59 and have no plans to retire for another decade, you might opt for a mixture of growth and income investments.

The difference is normally that:

  • Investments such as shares have the potential to grow in value.
  • Bonds are a type of debt owing back to you from the company, and the profit is the interest you earn.

It’s not always quite so simple because equity-invested funds exist to provide an income, and you can pick bonds created to generate asset value growth, but the principle stands.

An investment trust is also a possible solution, structured slightly differently from a regular investment fund and designed to produce an income.

Unsure Why Growth Vs Income Investment Is Important?

Because the investments you choose – equities, bonds, or a bit of both – will rely on your risk appetite and the time you have before your planned retirement, and what that means for the loss potential you’re prepared to accept.

As you get closer to retirement, you will rely on your investments for income, so normally switch the balance.

The easiest way to compare funds is to look at the yield, indicating the income expected for the next year, or sometimes a month or quarter). A higher yield is great financially but will inevitably mean a slightly higher risk.

Picking Active Or Passive Investment Funds

The final area to consider is if you’d like an actively managed fund or investments that generate passive income without monitoring.

Most retirement investors go for a blend because passive funds are cheaper since you won’t need to pay high management fees, but they’re less flexible and dynamic.

Capital growth investments without excessive risk tend to include funds in fairly mature markets like Europe or the States and global growth funds.

Another good option to mix equities with bonds is to open a fund that does the legwork for you. For example, you might choose an equity fund with 60 per cent in equities and 40 per cent in bonds, so you’re getting the best of both worlds.

Lastly, funds tracking commodities are worth considering.

Low-cost funds are a neat way to diversify a portfolio without putting all your money into one asset. Diversification lets you stand less risk if the markets have a slight wobble.

All You Need to Know About Investing in Your 50s FAQ

What should I invest in at 50?

It’s impossible to provide a shopping list of products because your investment choices link to your risk appetite, retirement plans, required returns, and how much you have to invest. Most people considering retirement in the next 15 years will focus on products making full use of tax allowances. You can also amend a private pension and any auto-enrolment pensions to change how your pension assets are invested.

How can I calculate what my pension is worth?

If you have a defined benefit pension scheme, it should be easy to see how much you’ll receive in pension benefits. This product is worth holding onto because it’s a guaranteed income linked to your salary.

Defined contribution pensions are different because – in essence – you get back what you put in, plus profit earned, so it’ll depend on your pension deposits over the years.

Which has a Pension Calculator that might be a handy tool, or you can request pension statements from every provider you save with.

It’s important to include all your income streams, such as a rental property, any pension cash, the State Pension and investment income, to get a realistic picture of your forecast retirement income.

What is the best portfolio balance for middle-aged investors?

You need to look at your living costs and how long you have until you plan to retire before deciding on an ideal portfolio blend. For example, if you’re expecting to retire in five years, your investments will look somewhat different from somebody who plans to work for another 15 years.

Most of the time, an investment adviser will diversify across stocks and bonds, so you have the opportunity to make profits and some products that are low-risk with a secured return.

As a rough guide:

  • Conservative portfolios might comprise 70 per cent or 75 per cent bonds, with 15 to 20 per cent stocks and 5 per cent or 15 per cent in cash.
  • If you’ve got more time to play with, you might reduce your bond investments to 55 or 60 per cent and increase your stocks to 35 or 40 per cent.

Should I withdraw money from my pension to invest?

We can’t advise without a comprehensive understanding of your finances, but as a rule, no.

It’s rarely wise to dip into your retirement savings, no matter how lucrative an investment opportunity might be.

Unless you absolutely must use a lump sum entitlement, you’d normally be advised to leave your retirement savings well alone and look at amending your account settings if you’d like a different fund management approach.

Can I choose how my pension provider invests my fund?

Yes, most pension providers have a portal or dashboard, and you can see how your fund is invested through your online account.

If you do nothing, the scheme provider will choose how to invest your fund, normally based on your age and your proximity to the state retirement age.

Otherwise, you can tweak the investment approach yourself.

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