Older, wiser, fifty and free

The third in a series on financial planning through the stages of life

POLICEMEN looking younger is one thing. Cliff Richard turning 55 this month is, for many erstwhile Teds and Rockers, an altogether more serious sign of how quickly time is passing.

But being in your fifties need not be a trigger for nostalgic regret. Indeed, for many it is a time of financial and social freedom, as children become more independent. It is also a time when retiring starts to become a definite forthcoming event, rather than a remote future possibility.

The key to maximising this relative financial freedom is planning. Whatever your personal circumstances, the main financial points to consider are:

q Eliminate short-term debts. If you have any spare savings, pay off any outstanding overdraft or credit or store card debt - you are almost certainly paying a lot more to borrow than the return from your savings.

q Review your mortgage. The fact that you may be aiming to repay your mortgage within a decade or so does not mean you cannot cash in on the crop of cheap fixed-rate and discounted deals. In fact, as Ian Darby of John Charcol, the independent adviser, says, many in their fifties are ideally placed to benefit from this competition because some of the best deals are reserved for people who are borrowing less than 75 per cent of the value of their homes. Do check that the savings on the deal will cover the costs of switching to a lender within a year or so, and watch out for hefty redemption penalties.

q Check your pension provision. Retirement planning should be moved to the top of your agenda. As a first step find out what you are in line to get - from the state (ask the DSS what your projected basic state pension and Serps entitlements are), your current and any previous employers (check the projected benefits statements), and any private plans. It is useful if your partner does the same, as it is your joint income that will be critical in determining how much money you have in retirement.

q If you can, top up your pension. Pensions are a highly tax-efficient form of saving - you get tax relief on your contributions and the investment fund itself grows tax-free. If you have got spare cash, whether it is a lump sum or money you can afford to save each month, it is usually worth topping up your pension. If you are in a company scheme, you get tax breaks on pension contributions (including your and your employer's contributions) of up to 15 per cent of your earnings. You can either take out an additional voluntary contributions (AVC) plan from your employer, or a free-standing AVC (FSAVC) plan from an insurer. The latter tend to be more expensive, but offer greater flexibility if you switch jobs. If you have got a personal pension plan, the simplest option is to increase your contributions. The Inland Revenue sets limits on the maximum you may contribute which, as with so many tax rules, are not famed for their simplicity - the annual ceiling for people in their fifties varies from 20 to 35 per cent of net earnings.

q Review your savings and investments. Check whether your current mix of investments suits your needs. Are you happy with the mix between safe, immediate-income products like savings accounts and riskier, medium-term growth products, such as unit and investment trusts? Many people's natural inclination is to lean towards the safe haven of their building society, and it is a good idea to keep at least an emergency fund there, ready for instant access. But equity-based investments, like unit trusts, have historically produced much better returns than savings accounts. If you are choosing unit or investment trusts, look for funds with good performance records, investing in areas with which you feel comfortable.

q Use the tax breaks on offer. Once you have decided on your investments, exploit the available tax breaks that fit those investments. The main tax shelter is the Tax Exempt Special Saving Account, or Tessa (essentially a five-year savings account offering tax-free interest on savings of up to pounds 9,000 in total) and a personal equity plan (PEP). You can invest up to pounds 6,000 a year in a general PEP, which can be used to hold most mainstream unit and investment trusts. All returns from PEPs are tax-free.

q Review your insurance cover. Many people in their fifties understandably start worrying about the costs of long-term nursing-home care. But tread warily - as Nick Conyers of Pearson Jones, an independent adviser, says, "The policies are very expensive and the risks are not that steep." The odds of needing residential care are around one in six and most people only stay short-term.

q Plan for inheritance tax. This applies only if your estate, which includes your home, is significantly more than the pounds 154,000 inheritance tax threshold.

q Write your will. If you die intestate (without having made a will) it can create serious problems for your family.

Tips for the 50s

DO/DON'T

Check what your current pension entitlements are.

Assume your pension will give you an adequate income in retirement.

Top up your company or personal pension if you can afford to.

Act without getting good, independent advice.

Consider remortgaging.

Switch without checking that the saving will cover the cost of the move within around 12 months.

Review the cost of your life insurance; you may be able to cut your premiums by switching insurers.

Cash in any endowment policy that is linked to your mortgage; there are usually hefty penalties.

Make use of tax-efficient investments such as PEPs and Tessas.

Invest for tax breaks alone.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

    Iran is shifting from pariah to possible future policeman of the Gulf

    Robert Fisk on our crisis with Iran
    The young are the new poor: A third of young people pushed into poverty

    The young are the new poor

    Sharp increase in the number of under-25s living in poverty
    Greens on the march: ‘We could be on the edge of something very big’

    Greens on the march

    ‘We could be on the edge of something very big’
    Revealed: the case against Bill Cosby - through the stories of his accusers

    Revealed: the case against Bill Cosby

    Through the stories of his accusers
    Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

    The Meaning of Mongol

    Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible