Paul Gillen, Financial Planner at Seven Investment Management (7IM), explains why taking stock of your finances in midlife could head off serious issues at a later stage and outlines key questions to kick the process off.
At some point in your 40s and 50s, people will begin to offer you cholesterol tests, blood sugar tests, NHS Health Checks, or various other types of screening.
It’s easy to view these checks as yet another inconvenient reminder that you’re not going to see 30 again. But you could regard them as an opportunity. By catching any health issues early, you can reduce risks and correct habits that may cause problems later on.
For the same reasons, we’d recommend a financial health check.
“Normal” working life isn’t going to provide calendar reminders about giving your retirement planning an MOT, so it’s easy to miss problems. Spotting them in your 40s or 50s could have a significant positive effect on your income and lifestyle in future decades.
What am I looking for?
The basic questions for a midlife financial health check are:
- What sort of pension pot will I need for the retirement I want?
- Am I on track to reach that?
- When do I want to retire and is that realistic in financial terms?
- What changes may impact my future plans?
Even if you’ve been steadfastly feeding your pension since your 20s, it’s still worth giving it a midlife medical. Recent increases in the state pension age, along with continual changes to pension allowances and taxation, have radically changed the pensions landscape. Besides, tax rules can change and taxation will vary depending on your individual circumstances. You should seek pensions and tax advice if you’re not absolutely sure.
Even if you’ve been steadfastly feeding your pension since your 20s, it’s still worth giving it a midlife medical. Recent increases in the state pension age, along with continual changes to pension allowances and taxation, have radically changed the pensions landscape
In addition, pension freedoms are giving you choices that didn’t exist a few years back.
Top Tip
Periodically reviewing your financial plan is good practice, but it pays to carry out a more thorough one at key life stages.A midlife financial MOT is likely to reveal a number of ways you could boost your long-term financial position, even beyond that all-important retirement planning. Our users are often able to achieve serious tax reductions, so why not meet an adviser via our fast, free matching service to see how your wealth could work harder?
Lee Goggin
Co-Founder
Do I really want to know?
It’s tempting to put off medical or financial health checks for fear of bad news. But one advantage of doing it in your 40s or 50s is that you still have time to make changes.
For example, a midlife MOT for your pension could model the possible effects of saving more, or warn you if you’re in danger of exceeding your lifetime allowance.
It could also help you avoid the risks of automatic “life-styling” – where pension providers switch pensions into funds with lower-risk profiles as you get closer to your retirement age. If you plan to keep your retirement pot invested and use drawdown to fund your retirement, these lower-risk investments may not provide the returns you need.
Making small changes – whether that’s doing more exercise or upping your pension contributions – could really make a positive difference to your life a few years from now
Just like a physical health check, a financial health check may raise some difficult questions you don’t necessarily want to think about. But not knowing about them could be much worse. Making small changes – whether that’s doing more exercise or upping your pension contributions – could really make a positive difference to your life a few years from now.
So, don’t dismiss these midlife health checks as inconvenient or cause for gloom. Think of them as helping you get what you want from life, a chance to do things better.
