Retirement readiness in your 50s

While saving for retirement might have been a long-standing objective, now is the time to know how much you need to save. This target will depend on when you plan to retire, your retirement lifestyle aspirations, and factors like projected investment growth and inflation.

Reviewing your investment portfolio

With retirement approaching, assessing whether your investment portfolio effectively balances risk and reward is vital. The appropriate level of investment risk varies based on your retirement funding strategy and timeline. If you’re considering purchasing an annuity, progressively shifting your pension fund from stocks to lower-risk assets, such as cash, can safeguard against market volatility.

Conversely, if your retirement strategy involves income drawdown or other investments, maintaining exposure to equities can support long-term growth, shielding your savings from inflation’s erosive effects.

Focusing on pension contributions

Pensions are highly effective retirement savings vehicles, particularly in your 50s, due to the tax relief on contributions. In the current 2024/25 tax year, for basic-rate taxpayers, a £1,000 pension contribution effectively costs £800, while higher-rate taxpayers pay £600, and additional-rate taxpayers pay £550. This tax relief acts as a government-subsidised boost to your retirement fund.

Most individuals can contribute up to 100% of their UK relevant earnings or £60,000 annually (2024/25 tax year) while benefiting from tax relief up to age 75. If your income is very high, your pension annual allowance might be lower, but unused allowances from the previous three years can be utilised under carry-forward rules.

Maximising tax allowances

Beyond pensions, several tax allowances can enhance your investment strategy. You can invest up to £20,000 a year (2024/25 tax year) into Individual Savings Accounts (ISAs0, securing tax-efficient growth and withdrawals. This flexibility benefits those retiring before age 55, providing a valuable income source.

Other allowances include the personal savings allowance, dividend allowance, and Capital Gains Tax exemption, allowing for tax-free interest, dividends, and gains within specific limits. We can assist in optimising these allowances to ensure your portfolio is structured for maximum tax efficiency.

Importance of professional guidance

The investment choices you make in your 50s can significantly influence your retirement lifestyle. While there’s still time to fortify your savings, missteps can derail your plans. Professional financial advice is invaluable in navigating these challenges. We’ll evaluate whether your portfolio aligns with your goals and ascertain if you’re on track for the retirement you envision.

THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS THE PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.