If your 40s involved putting long-term financial plans in place, your 50s should hopefully be about making small adjustments to keep those plans firmly on course. We’ve put together a few helpful ideas that could set you and your family on the right path in the years ahead, so you can make the most of later life.

Work out what your retirement could look like

During your 50s, you might begin to think about taking a step back from work and start exploring how you would like to spend your time in retirement. After all, it could last for another 30 or 40 years.

It’s important to be realistic about what you want to do with your time – and how that might change as the years pass. Do you want to travel, visit family and friends overseas, or would you like to devote more time to your hobbies and interests?

Working out your retirement plans well in advance has clear benefits. Not only will it give you a sense of purpose that ensures you enjoy life after leaving work behind, but it will also give you an idea of how much money you’ll need to live the lifestyle you want.

Taking stock of your pension pot during your 50s should hopefully give you enough time to address any shortfalls

Find out how much you’ll need

Most people aim for a retirement income of around half, to two-thirds of their working life income.

Taking stock of your pension pot during your 50s should hopefully give you enough time to address any shortfalls. If, for example, your children have left home and you’ve paid off your mortgage, it might be a good idea to increase your pension contributions or even pay in a lump sum. Focusing on building up your pension in your 50s could make a significant difference to your overall retirement pot, and therefore help to make your retirement years more comfortable.

Also, if you’ve had several jobs during your working life, you may have been part of a company pension scheme at each of them. If you’ve accumulated multiple pensions, you might want to explore whether consolidating them into one offers an easier, more cost-effective way of managing your retirement pot.

However, it’s worth remembering that you should seek professional advice before making any significant changes. Consolidating your pensions without this guidance could mean you lose valuable benefits or get hit with additional charges.

Check your pensions against the Lifetime Allowance

The maximum pension savings you can build up while still enjoying the full tax benefits is £1,073,100 for the 2022/2023 tax year. This is known as the Lifetime Allowance.

If your pension pot is worth more that the limit, tax will be due on the excess amount at certain times. If you are close to breaching the Lifetime Allowance, you may want to discuss other investment options with your financial planner that let you continue saving for retirement in a tax-efficient way.

Consider rebalancing your investments

Now might also be a good time to look more closely at the investments you hold – especially those within your pension – to ensure the money you’ve built up is protected as much as possible. Broadly speaking, most people opt for ‘capital growth’ during their early years of investing, as higher risk ‘growth’-focused investments have the greatest potential for higher returns over the long term.

During this phase, time is on your side. Even if your investments suffer from inevitable periods of stock market turbulence, there’s a good chance they will recover their value and keep growing over time.

However, as you get older, and assuming your investment pot has grown healthily over the years, it may be time to start altering the balance of your portfolio. The idea is to focus more on ‘capital preservation’ instead of capital growth, to protect the size of your pension pot and take fewer risks with your money. After all, pensions are like any other investment because their value can fall as well as rise, and you may not get back the full amount invested.

Before you make any significant decisions about changing your investment portfolio or pension, it’s important to talk to a professional financial planner, who can assess your situation and help work out the best approach based on your personal circumstances and your long-term financial goals.

It’s time to start thinking about ways to ensure your wealth goes to the people you want it to

Accessing your pension to reduce debts

Since 2015, everyone with a personal pension or stakeholder pension can access their pension savings and start making withdrawals after they turn 55. What this ‘pension freedom’ means is that after you turn 55, you can choose to take a cash lump sum from your pension savings.

The first 25% of this lump sum will be tax-free, while anything over that amount will be taxed at the rate of income tax you usually pay. Lots of people in their 50s decide to use the tax-free lump sum to pay off their mortgage or to clear other debts, or to help pay for large purchases.

Again, it’s always worth talking to a financial planner before making such a big decision. After all, once that money has been taken out of your pension, it loses its tax benefits and can’t be easily replaced. For that reason, it may be better to leave your pension untouched (and still growing) and use any other investments you have instead.

Getting your estate (and legacy) in order

When you reach your 50s, it’s likely you’ll spend more of your time thinking about what will happen to your loved ones when you’re no longer around.

If you have built up wealth during your life, including property, investments and other assets, it’s time to start thinking about ways to ensure your wealth goes to the people you want it to – and any potential tax bills are kept to a minimum. That’s because any Inheritance Tax (IHT) due on your estate must be paid by your beneficiaries (the people you choose to leave your estate to) within six months of your death being recorded.

So, for example, you might arrange for gifts to be paid to loved ones during your lifetime that lower the value of your estate. Or you might set up a trust so that you can specify who receives your assets, and when, without attracting an IHT bill.

Now is also a good time to write or updated your will, to ensure your wishes are reflected when you pass away. You should also consider setting up a Lasting Power of Attorney that will appoint someone to act on your behalf if you can no longer make financial and health-related decisions.

If you’re thinking about getting your estate in order, it’s well worth reading our articles on estate planning or talking to an Amber River professional financial planner who can assess your personal situation and recommend some estate planning strategies.

Business succession plans

If you own a business, your 50s might be the right time to start thinking about what will happen to it in the future. This might involve starting to wind down business operations to reflect your move towards retirement, selling your stake in the business, or withdrawing any cash built up in the business in the most tax-efficient ways possible.

Your plans could also include ‘business succession’ (having someone else take over from you). For example, if you want the business to be passed on to your children or an existing business partner or employee, this could involve creating a shareholders agreement that outlines your wishes for the business.

Putting a business succession plan in place sooner rather than later may make it easier to ensure the business reaches a successful conclusion, or can continue to be run profitably by others.

Getting help with your financial plan

With retirement drawing closer, financial planning during your 50s can make a real difference to your financial future. But everyone has a different idea of what that future should look like – that’s why Amber River developed Life Landscaping®. Our independent financial planners will work with you to come up with a bespoke life plan that finds the right balance between protecting what you have, and ensuring your wealth is given the best chance to grow.

There have been significant changes to pension savings in the Spring Budget 2023 that may impact your retirement planning. To find out more, see: How does the 2023 Budget affect your pension and retirement planning?

Get in touch

To speak to one of our team, arrange an appointment or find out more, call 0800 915 0000, or alternatively use our contact form here.