Written by Rebecca Stein, Investment Manager, Charles Stanley Wealth Managers, Oxford
1) Ignore compounding at your peril.
As an investor, compounding is your friend. If you are not already consciously building up an investment pot for your future, now is the time to give that some real attention. It’s not too late to start the compounding clock.
2) Earnings up, expenditure down?
Estimations of a person’s ‘prime earning years’ vary, but generally the money you earn in your 50s is seen as a good approximation of your ‘peak’ earnings. For many, this is also the time when children become (slightly!) less financially dependent and mortgage commitments are typically lower than in your 30s or 40s. You may find you have excess cash flow – think carefully about how you use this.
Does it just get spent on day to day ‘nice to have’s? Or could you do something more constructive with some or all of this excess income? Can you turn this excess income into a store of value (capital) to draw upon in the future?
3) A financial audit can be more useful than it sounds
By the time you reach your 50s you may be paying for or own items that you do not necessarily need. Spending some time going through direct debits and regular payments can yield surprising results. If you have a financial adviser, perhaps a review of any protection or insurance policies you are paying out for may be a worthwhile exercise. Are you still paying for things for other family members? Your children’s Sky TV, mobile phones, streaming subscriptions, or that insurance policy you took out in your 20s and can’t quite remember what it was for.
4) Pensions: get to know your options
The world of pensions has changed significantly over your working life. Different types of pension scheme, different rules and changing rules on how much you can contribute to a pension will all have an impact on how much pension income you might have.
Spend some time thinking about whether you have pension savings you have forgotten about. In 2019 the Association of British Insurers estimated that over 1.6 million pensions, worth a collective £19.4bn, were ‘lost’ – i.e., the pension scheme could not contact the underlying member. Try the Government’s Pension Tracing Service if you think this might apply to you.
5) Shares in your employer(s)
Many companies like to reward staff with shares as well as cash. Over time the value of these shares could increase. Think about your total level of exposure to the business and how the company matches with your own plans, i.e. is it a high risk, high reward business? Or is it a very stable, mature business? By holding these shares, are you pursuing the most appropriate level of risk for you?
As we get older, we may think about leaving wealth to future generations, but it’s important to take time to think about what this actually means to you. Consider these questions as a starting point:
- What is important to you? Family security or a charity close to your heart?
- Is control important to you? Would you impose an age restriction if leaving wealth to a minor?
8) Accumulation or decumulation?
Accumulation and decumulation are terms used in the wealth management world to describe whether someone is building their wealth, or spending it.
Consider your long-term wealth plans. If you have traditionally been a keen saver, the idea of spending more than you bring in can be disconcerting. It can take some time to get used to this ‘decumulation’ phase.
You may want to carry on accumulating throughout your entire lifetime, with the goal of passing significant wealth on to the next generation. You may aim to spend your last £1 on your last day on this earth.
The two require very different approaches to investing and have very different sensitivities to the inevitable swings in the stock market.
9) All to gain, or lots to lose?
In our 20s, 30s and 40s, many of us have what is known as a high ‘capacity for loss’. The younger you are, the more you are likely to be able to bounce back. You probably have a long investing life ahead of you so you may not need to realise any of your investments any time soon. Secondly, you should have many years of future earnings you can use to ‘dilute’ the impact of any earlier investment losses.
When you get to your 50s, this balance can tip. You are probably worth a lot more now than you were in your 30s, so the figures are larger. You may not want to carry on working to your current level in to your 60s and 70s. If you do want to retire in the next decade or so, you might be increasingly more sensitive to losses on investments or the associated ups and downs of the stock market.
In the last 20 years we have had 3 significant downturns in the investment markets: dot com bubble (2000), financial crisis (2007) and COVID-19 (2020). If you were looking to retire just as these events were unfolding, would that have changed your plans?
This has a large bearing on how your investments should be selected and constructed.
10) What does retirement look like, anyway?
Retirement looks different depending on who you ask. For some, the idea of 100% free time is the ultimate goal. For others, ‘retirement’ still means work, but just not the highly stressful, highly paid work they were used to.
Take some time to consider what ‘retirement’ looks like for you, so you can plan accordingly. Think about how much you might need to rely on your lifetime savings and investments for your future. Will they make up 100% of your income? Or just a part of it? Will your spending be the same in retirement as it is whilst you are working? Or slightly or significantly less? If you have some thoughts around lifetime legacies, how will they likely impact your retirement provision?
Contact Charles Stanley oxford for information on how we can help construct an investment portfolio which continues to work hard as your priorities change.
T: 01865 987 485
The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.