Avoiding an MMC (Midlife Money Crisis)
When you turn 40, it can trigger a spark of panic about money.
“Will I have saved enough money for retirement? Am I putting away enough for my children? Why haven’t I been able to pay off all my debts?” All of these horrible questions can suddenly strike, when all you thought you had left to do was write a bucket list.
A staggering third of British 35 to 39 year old adults — approximately 1.31 million people — say they have ZERO money in a pension, as researched by Zurich Insurance.
To help you feel at ease, here are eight things to help:
1. Invest – don’t wait until you have paid off your debts before you do so. There is no guarantee that investments will grow at a greater rate than the interest on debts, but money invested over decades will do more for you than a bit of cash invested right before retirement.
2. Invest a minimum of 15 per cent of your salary throughout your working life into a retirement fund. If you’ve had some time out from working or pension saving, increase the percentage to make up for lost time. “Don’t believe the doom-mongers, you can still build a decent pension from your forties,” says Romina Savova, the chief executive of PensionBee. Ask your employer to match your contribution. Some will increase their contribution if you increase yours, up to a certain amount.
3. “Use a combination of pensions and Isas for your savings,” says Olivia Bowen, from Castlefield, the independent financial adviser. Pensions are tax efficient when you pay money in, but you will pay tax on the income you receive from them in retirement. Isas don’t offer upfront tax relief, but will provide tax-free income in retirement.
4. Make sure you will have paid enough national insurance to qualify for the full state pension (£155.65 per week). You need thirty-five full years of contributions but you can top up your payments.
5. When saving for your children, don’t hold money in cash if you have a five-year or longer horizon, because it will lose money in real terms. “This situation is ideal for adopting an adventurous investment strategy, where you accept the greater volatility that comes with the potential for greater returns,” says Damien Lardoux, the portfolio manager at EQ Investors. “You can reduce risk as your children approach the age where they need the funds.”
6. Track down any old or forgotten pensions and consolidate them.
7. Don’t keep all your savings in cash. Interest rates are low, so it may be more prudent to invest or pay off your debts instead of keeping money in cash accounts (although some money in cash as an emergency fund is sensible).
8. Set up a direct debit for whatever you can afford to a junior Isa for your children, up to £4,080 a year. Children have access to these funds once they hit 18, so If you are worried, you can set aside some of your own, larger, Isa allowance for your children instead, this means you retain control.
If you have any questions about anything listed here, please don’t hesitate to contact me! You can find out how to do so on the contact page. Happy saving!
– Bronny