How to Prioritise Your Financial Planning in Your 50s in Scotland.

Most people continue to pay into a pension scheme throughout their working life but have little idea of the income their savings will generate in retirement.

Of course, you may still have a large mortgage to repay, and children of your own that you feel you must support. Your parents, too, may still be alive, and you may feel under pressure to provide for them also.

To develop a financial plan whilst in your 50s you need to look at your current finances and assess what you are trying to achieve with your excess savings. You can then look to consider the various options available to you to try and reach your goals.

Where should I start with my finances in my 50s?

Plan from the view of your present day household finances and list out the information in the relevant sections below in a bid to highlight your savings and investment requirements.

Consider all of your present day cash flows, pension schemes, outstanding mortgage(s), savings accounts, and policies including life assurance and income protection.

A useful starting point is to write down:

• Income after tax – that is money paid into your account after you have paid income tax and national insurance.
• Essential spending, including housing, bills and debt repayments.
• Savings (including money in current accounts and easy access savings accounts) which can be drawn upon as required.
• Current pension contributions, including anything your employer pays.
• Larger expenses expected in the few years running up to retirement (such as a car needing to be replaced or help required with children’s further education).

You should include all of your household income, and list all of your essential household expenditure. This will help you to understand how much you can afford to save each month to reach your goals. The left over amount each month after allowing for the above, is your surplus and this is what you can use to save and invest for your retirement and other goals.

Also think about how you might change your working circumstances. Working full time until age 60 is very different from reducing your hours to work part time until age 63 and then working full time until your retirement age.

How To Tell Whether Your Pension is on Track

This is your pension statement. Look at the projected income it suggests, the retirement age it uses and the assumptions made in the calculation.

For example, a fully facilitated pension scheme will show a projection based on the experience of the investments in the fund. This is an illustration of what might happen rather than a guarantee.

This will depend on the type of pension scheme(s) you have. Some schemes are ‘money purchase’ which build up a ‘pot’ of money during your working life. Others are ‘defined benefit’ schemes which promise to pay a specific amount of income in retirement, based on your salary and the number of years you have worked for your employer.

Review your State Pension forecast. It tells you when you can start drawing your pension, how much your pension will be and whether any extra amounts can be added to it. This is different to the age you retire and the amount you need to live on so make sure you treat them differently.

Use the expected income to compare against your expected expenditure during retirement and use our guide on how much you need to retire comfortably in Scotland as a rough benchmark of expected expenditure against which you can judge your expected pension income.

It is always worth investigating further whether your older pensions can be joined together, but be wary of losing certain guarantees or even benefits of your older scheme(s) in the process. We can carry out a full review of your current pension arrangements and help suggest alternatives.

Should you be paying more into your pension or repaying your mortgage?

It is also important to recognise that there are several ways to add value to your retirement. There are obviously the normal pension contributions but also the potential to pay down a mortgage prior to retirement.

What would a mortgage overpayment achieve?

This can reduce the amount of interest you pay and clear all of your mortgage debt early. It may be of particular interest if you expect to still have a mortgage when you retire.

Check what your lender will allow and also consider the ease of access to the money. This can be important as the money that you put into a mortgage is not generally as easily accessible as the money you save in easy access accounts. MoneyHelper explains the issues involved in repaying a mortgage early in their mortgage repayment guide.

Many people find it helpful to get professional mortgage advice to consider whether repayment by regular ad-hoc overpayments might be better than trying to switch to an interest-only or repayment mortgage.

What would an extra pension contribution achieve?

In addition to the tax relief available on the extra contributions you make, employers may also increase the amount that they, in turn, contribute to your pension pot if you are contributing more yourself.

Clearly you should check out what your scheme can offer you but contributions into a company pension scheme are generally tax-deductible, with relief at up to basic rate of tax (20%) added on top.

Scottish taxpayers who pay more than basic rate (20%) will also receive additional relief on top of the basic rate relief added by their pension scheme provider. This is explained on GOV.UK, in the section on how pension tax relief works.

Again, there are also limits on the amount of earnings that can be relieved, as well as an annual pension allowance.

Access is key. The normal minimum pension age is due to rise to 57 on 6 April 2028 but there are exceptions such as those with protected pension ages, ill-health or other such mitigating circumstances. The change and your scheme’s rules around the same need to be checked. The information on this change is on HMRC’s website.

It’s also worth considering a medium-term strategy where you increase your pension contributions and also make some reduction in your mortgage repayments (but not to the extent of abandoning your plans to pay off your mortgage early).

How much should I keep in accessible savings?

We need to consider how you will pay for unexpected bills or periods of absence from work of up to 12-18 months before investing for the long term.

MoneyHelper suggests three to six months of essential outgoings as a useful rule of thumb for emergency savings. As an example, if you spend £2,000 a month on essential spending, then you would need to save £6,000-£12,000.

It is also worth bearing in mind the purpose of the money that you are setting aside and the planned expenses that you have against future years, e.g. saving for a new car in 12-18 months time is very different from saving for your retirement in 10-15 years time.

It’s also worth considering the timescale for the money and whether investing would result in you losing money if you needed to access it within a short time frame. Long-term savings are generally better suited to investing in assets that can go down in value, but allow for greater growth in the longer term.

A review of your savings and investments can help you assess which money needs to remain accessible and which could support your longer-term plans.

How would you cope if you couldn’t work until your planned retirement age?

No retirement plan can ever count on another 10-15 years of the same earnings before ill health and injury occur and take their toll.

Check the amount of sick pay your employer will pay and how long for, and compare this to your household expenditure and your amount of accessible savings. If you are self-employed consider how your business and household will cope without your income.

Income protection insurance will pay out a proportion of your pre-tax income should you become unable to work due to illness or injury. The policy will specify the length of time you must wait before payments commence (known as the deferred period), how much you will receive, and for how long payments will be made. More information regarding income protection can be found on MoneyHelper’s website.

While life insurance is intended to pay out a lump sum on death of a policy holder, if you have a dependant or children it may be worth checking that the amount of cover currently held is sufficient to pay off your mortgage and any other outstanding commitments and to provide sufficient capital to cover ongoing commitments for a suitable period of time.

Don’t forget to assess any gaps in your current cover and consider whether there are any changes to your circumstances which may mean that your existing cover is no longer adequate to meet your needs.

What should I review about the money and property I leave behind?

If you made a will years ago, check whether it still reflects your family and wishes. Marriage, separation, a new partner or a significant change in assets can all be reasons to review it with a solicitor.

Scottish rules need particular attention. For example, an unmarried partner does not automatically inherit when someone dies without a will, even if they have lived together for many years. Citizens Advice Scotland explains why a will matters.

Check your pension beneficiary nominations separately. These tell the scheme whom you would like it to consider for death benefits; how benefits are paid depends on the scheme’s rules. Updating your will does not automatically update these nominations.

A review of your estate planning arrangements can bring these questions together with any plans to give money to family. Before making a substantial gift, consider whether you may need that money for your own retirement or future care.

How do I decide what to tackle first?

It is best to deal with the matters most likely to cause problems in the short term first, such as the need to pay an overdue bill, deal with a high cost debt or ensure that you have sufficient savings to cover unexpected problems and to pay essential expenditure for an extended period.

Prepare your review – Whether it is an online review, a visit to your local advice office or a meeting with your independent financial advisor, it is worth gathering together any relevant paperwork and setting out the questions that you would like to have answered as part of your review.

At AB Vision, our experienced team of Independent Financial Advisers provide independent financial advice to private individuals and families based in Ayrshire. We would be delighted to discuss your circumstances with you and provide you with advice on how to prioritise your financial planning goals. Get in touch with our team to discuss your circumstances.