The costs of buying a home, repaying loans, raising kids and financing cars all add up – and means millions of adults in their 50s are looking at a fast-approaching retirement without a healthy nest egg.
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While stories abound of millionaires in their 20s and how retirees reap the rewards of a lifetime of saving, it doesn’t mean you shouldn’t start saving now, no matter your age.
If you still have ten years or more before retirement, that’s a significant period you can use to boost your pension, secure reliable returns, and provide all the comforts you expect.
This guide looks at investment strategies for different life stages and some of the best low-risk approaches if you’re a newbie investor in your 50s.
Building A Retirement Fund Between 20 And 40
Once you’re in full-time employment and have a little financial freedom, you have multiple ways to start on your retirement fund, making small contributions, which means your day-to-day finances remain manageable.
Even minor deposits into a pension or tax-friendly ISA will add up if you’re still a long way from retirement.
Investment options with compound interest are the most advantageous and mean that all the cash you set aside can snowball into a more robust pot.
Tips include:
- Contributing more than the bare minimum to a workplace pension or auto-enrolment scheme. You benefit from employer contributions and tax relief on top of your payments.
- Setting up your pension if you’re self-employed. A This Is Money report in 2021 identified that only 14 per cent of the self-employed have a pension, compared to 88 per cent of employees. Stakeholder pensions or self-invested personal pensions (SIPPs) are both decent options.
- Opening a Lifetime ISA – you can save up to £4,000 a year, with a 25 per cent bonus from the government. Anybody from 18 to 40 can open this tax-free savings product.
A Lifetime ISA is only cost-free if you use it to save for a property deposit or retirement, and you might incur a penalty if you withdraw your cash for another reason.
Investment Risk For Younger Savers
Most of us err towards caution when investing for retirement, protecting small amounts we’ve managed to save.
However, it would be best if you balanced your attitude towards risk to stand the best chance of making higher returns on your investments.
Savers can invest in equity-based funds or equities through an ISA or pension fund and can afford to take slightly higher risks. There are decades to build up new investments if there is a drop in the stock market.
Keeping cash in a savings account isn’t a great strategy – you’re losing money as you go because interest rates usually are lower than real-terms inflation.
Creating An Investment Plan At 40 – 60 Years Old
If you’re over 40, you still have time to catch up, even if you don’t currently have anything set aside for the future – or have pension plans paying minimal benefits.
You’ll need to contribute a higher proportion of your income than you might have done 20 years ago, but you may also find you have a few pension schemes in the background.
According to Unbiased, about one in ten of us have an old pension set up by a previous employer that we’ve forgotten.
The government offers a pension tracing service, and they can help track down funds held in your name – visit the Find Pension page for more information.
At this stage, you should still focus on contributing as much as possible to any current workplace pensions.
If you save about £100 a month at age 40, by the time you’re 55, you’ll have accumulated an average of £24,000 in savings.
It’s also important to remember that you have plenty of time to invest in your pension scheme in your 50s.
Just because you are entitled to withdraw funds from age 55, you don’t need to have had money in a pension account for decades to get the same tax advantages.
Investment Risk For Savers In Their 50s
The most suitable risk approach will change as you get nearer to retirement. Although you shouldn’t try and omit risk altogether, you need to be conscious of your exposure levels.
If you are in your early 50s and don’t anticipate retiring until you’re 67 or 68, you can take some risks to maximise your pension value in the intervening years.
ISAs are also worth remembering – you can invest up to £20,000 per tax year.
Contributions to an existing Lifetime ISA count towards that annual limit, so if you have other ISA savings, bear that in mind.
Although you’ll be making payments from your taxed income, you won’t pay tax on withdrawals, and there aren’t age limits like a pension fund.
The Best Ways To Invest In Your 60s
Many people in their 60s start to panic when they review a pension statement and realise they’ll have a tiny income to rely on when they give up work – but options are available.
Between 15 and 20 per cent of people aged 55 and above have no pension investments aside from the State Pension.
At this stage, it’s a good idea to see how much state pension you are likely to collect. Then, if you’ve missed some years, you can top up your account with voluntary contributions.
The current payments are £185.15 a week (£9,627.80 a year) and increase each year by the higher of the inflation rate, 2.5 per cent, or average earnings growth.
If you’re only one or two periods short, topping up your pension eligibility could be a low-cost way of bumping up your retirement earnings.
Releasing Retirement Funds Through Property
Increasingly, retirees are looking at their property investment, where they own their own home and have no other notable savings or investments.
Although it isn’t for everyone, there are multiple ways to finance retirement:
- Taking out a lifetime mortgage or retirement interest-only mortgage
- Applying for a secured equity release product
- Using home reversion equity release (essentially selling a proportion of your property)
The drawback is that, while you remain the owner and have the right to live in your home until you pass away or enter full-time care, the lender will sell your property when either event occurs.
Benefits include releasing a potentially large amount of cash – roughly 50 per cent of your property value – but you may be unable to leave your home to your heirs.
Most prefer to work on higher-return investments or maximise their pension contributions, and if you plan to work past the state retirement age, there is no reason you can’t do so.
It’s Never Too Late To Invest In Your 50s FAQ
What’s the best way to save for retirement?
We all have conflicting priorities, but failing to save anything for retirement can be disastrous. One of the easiest options is to set up automated contributions or pension deposits, which means you pay yourself before you start allocating monthly income to other expenses. Direct debits or standing orders, paid into your pension or ISA, are a great way to ensure you never forget an instalment.
Can you start investing at any age?
A primary reason older people say they haven’t invested before is a lack of knowledge or timidity about the chance that stock markets will crash. Multiple products with low-risk exposure are suited to older investors. If you are below 40, a slightly higher risk level is usually advised since you have plenty of time to diversify your portfolio or reinvest to recoup losses suffered. Professional investor advisers or wealth managers can run through the appropriate options, depending on how much you have to invest and the returns you’d like to make.
Should I invest money if I still have a mortgage or student loan?
The norm is to focus on repaying unsecured debts such as credit cards or personal loans before thinking about savings or investments. A student loan, mortgage or long-term debt shouldn’t be a barrier to investing (and realistically, aren’t likely to be repaid quickly). If you can boost your workplace pension contributions, you’ll start building up that retirement nest egg, even if you have a mortgage you’re repaying at the same time.
What should I invest in if I’m in my 50s?
There isn’t a universally correct answer since your ideal investment strategy will depend on many variables. However, as a rough guide, a conservative portfolio might include 70 to 75 per cent bonds, 15 to 20 per cent stocks, and the balance in cash or equivalents.
How much do I need to retire?
Experts advise that an average person needs at least an annual income of £10,900 for an adequate lifestyle, but conceivably much higher if you wish to travel or enjoy a more luxurious retirement.
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