Your 50s are a pivotal decade, especially when it comes to your finances and planning your future. You’ll be on the cusp of a new and exciting chapter and, if you’ve had children, you’ll have more free time and disposable income than you’ve known for years. But no matter how savvy you think you are, older doesn’t always mean wiser, especially when it comes to managing money. Here are five of the worst money mistakes you can make in your 50s.
1. Being afraid to plan
Thinking too far into the future can be uncomfortable sometimes, but it’s important to plan ahead and consider the health of your finances now and in the future. That can entail everything from keeping an eye on your current spending to deciding when’s the right time to give up work and start drawing your pension. It’ll also include writing a will and ensuring you leave your money and assets to your loved ones. The sooner you start planning the sooner you’ll have more control and can look forward to a secure financial future rather than fearing the unknown.
2. Letting the debt rack up
If you’re spending more than you earn or are letting seemingly innocent things like credit card debt pile up, you should try to reduce the money you owe as soon as possible, starting with the high-interest items first. In theory, your earning potential should be at, or close to, its peak in your 50s which makes it a great time to clear any niggling debts that are costing you more in the long-run. Not only will you have peace of mind that you don’t have anything hanging over your head, you’ll have a much clearer picture of your finances.
3. Not paying off your mortgage, if you have the chance
'My bank has written to me to ask how I'm going to pay off my mortgage. I'm not sure. Oh I'm 85.' https://t.co/B4Vjc50cv7— This is Money (@thisismoney) 16 August 2017
Buying a home is undoubtedly the largest purchase many people will make in their lifetime, and it’s normal to require a mortgage of at least 20 years or more to help pay for it. It’s also not uncommon to remortgage every few years, sometimes taking back some of the equity that’s built up in a home to pay for anything from home improvements to luxury holidays. But each time you remortgage and release equity in your home, you extend your mortgage and increase your interest bill, effectively taking two steps forward and one step back – sometimes more.
No matter how long or short your mortgage term it’ll always be possible to repay it faster. Every time you have some spare money at the end of the month or come into some cash, you should consider using it to pay down your mortgage. Most modern mortgages will let you overpay by around 10% a year, but it’s worth checking your paperwork or speaking directly to your lender for more information and to avoid any penalties.
4. Allowing yourself to become the Bank of Mum and Dad
At what point should the Bank of Mum and Dad close? More than half of millennials still receive money from their parents for everything from groceries and new clothes to weddings and deposits https://t.co/EG5WoqNODE— This is Money (@thisismoney) 15 June 2018
This is a hard mistake to overcome because, naturally, parents will do anything for their children. And at life’s biggest moments your children will rely on you for a helping hand, whether that’s when they’re starting university, graduating, getting their first home, getting married or having a child.
Acting as their financial crutch too far into adulthood can be a slippery slope, especially as you near the end of your career. When you were younger your children were your financial responsibility and you could happily spend your savings or borrow money to help them, knowing that you have several years to pay it back. But as you get closer to retirement you’ll need to save your hard-earned cash for your future and prioritise your own needs.
5. Not being smart with your pension
There are several things that can go awry with your pension as you approach retirement. Here are three of the worst mistakes you can make.
Hoping for the best from the State Pension
If you think the State Pension will be enough to see you through, you’ll be in for a shock! Those aged 65 and over can currently get a maximum of £165.35 a week or £8,545.50 a year, based on their National Insurance contribution records.
You’ll need at least 10 years’ worth of contributions to receive anything at all and at least 35 years’ to claim the full amount - which at just £8,545.50 isn’t likely to get you very far. Especially if you’re guilty of number 3 and won’t be rent-free in retirement. Plus, the UK State Pension age is rising to 66 by 2020 and 67 by 2028 so you’ll have to work for longer than you might like if you don’t have any savings or pension provision.
Not knowing how much you need to retire
If you’ve had a ‘head in the sand’ approach to your pension your whole life, you’ll need to face the reality of living your senior years on the breadline if you don’t prioritise your pension. Several estimates put the amount you’ll need for a comfortable retirement at around 70% of your salary, and given the full State Pension comes in at just £8,545.50 it’s highly unlikely the sums will add up.
How much you need to save will very much depend on your personal circumstances, from your current earnings and outgoings to your expected standard of living in retirement. Try using a pension calculator to set yourself a retirement goal based on how much you’d like your pension to pay you annually and when you’d like it to start. It’ll tell you exactly how much you need to save each month to make it a reality.
Have you tried our pension calculator? No? Calculate how much you have and estimate how much you need for retirement. Jargon free, we promise 👊 #fintech #pensions #challenger capital at risk https://t.co/HzRmYsTzMx pic.twitter.com/piULap2KTA— PensionBee (@pensionbee) 4 July 2018
Whether you’ve not yet started a pension or just haven’t met your retirement goal yet, there’s plenty you can do in your 50s to build up a sizeable pension pot. Read our top tips for getting on top of your pension in your 50s.
Withdrawing too much of your pension
If, contrary to the above points, you’ve worked hard to save into a pension, we salute you, however you’re not home and dry yet. One of the biggest mistakes you can make with your pension in your 50s is underestimating how long it will need to last and withdrawing too much too soon.
Now that you can access your pension from the age of 55, 10 years earlier than you can get your hands on your State Pension, it can be tempting to withdraw some of it as soon as possible. But if you withdraw too much in your 50s, you may not have enough to last you into your 70s and 80s – possibly even your 90s. Ideally you should keep as much of your pension invested as possible in your 50s and 60s and delay taking a pension until you absolutely have to. This will give your savings the maximum amount of time to grow and once you do come to take your pension it won’t have to last you as long.
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.