Financial planning is a bit like life itself – it’s constantly evolving and can occasionally give you sleepless nights. What you need to focus on when you’re young might not be the same when you’ve got a mortgage, are midway through your career, have started a family, or are approaching your retirement. From navigating student loans in your 20s to working out how your pension will support your dream retirement in your 60s and 70s, your financial needs and strategies shift at each stage of life.
The roaring 20s (ages 20-30)
At this stage, you’re likely starting your career and enjoying the freedom of adulthood. Maybe you’re starting to think about expanding any financial education you were taught at school. So this phase of life is key to setting those financial foundations.
Learn to budget - boring? Yes. Optional? No. Whether it’s cutting down on your Friday night takeaway, or cancelling that gym membership you rarely use, setting up a budget (and sticking to it) will help you stay afloat.
Start an emergency fund - picture this: your car breaks down, or your boiler gives up. Having an emergency fund – around three-to-six months of expenses – will give you peace of mind and can prevent you from having to ask your family for a helping hand.
Avoid high-interest debt - student loans, credit cards, and that overdraft you may have forgotten about after University. Focus on paying off any high-interest debts first. It’ll save you money and help you avoid that sinking feeling when checking your bank account.
Start a pension - it might feel like you have decades of time to spare, but if you start contributing to a pension now, your future self will thank you. Compound interest is magical, even if it sounds boring, as it gives your investments the opportunity to grow over time when left untouched. This is because you earn interest both on your initial amount and accumulated interest you’ve already earned.
Establishing roots (ages 30-40)
When you hit the 30s mark, life can become busier with more responsibilities to juggle. You might have a bigger salary than the decade before. But with that, comes more expenses – housing costs, dependents such as children or even looking after your parents. It also comes with big occasions, such as attending loved ones’ weddings. Many might decide to take a sabbatical from work. Here are some goals to consider.
Increase pension contributions - a rough rule of thumb is to try and pay 15% of your annual salary into your pension if you can. If you have more stability and a higher salary, you could consider putting more into your retirement fund.
Buying a home (or paying it off faster) - if you aren’t a homeowner, you might be thinking of buying a property which will require a down payment. If you’re already a homeowner, consider reducing the mortgage as quickly as possible by refinancing to a lower interest rate, increasing your down payment, or choosing a shorter loan term.
Consider life insurance and write a will - if you’ve got a family depending on you, life insurance is essential. This could also be a wise time to write a will to avoid any complications later on.
Plan for the kids’ future - if you’ve got kids, consider saving for them - whether that be for their education, their future home or even retirement. A Junior ISA (JISA) is an easy and tax-efficient way to save.
The peak-earning years (ages 40-50)
Once you hit your 40s, you’re more likely to be in your peak earning years. Now is a good time to make sure you’re on track for the retirement you want.
Maximise pension contributions - you can’t rely solely on the State Pension for your retirement. The type of lifestyle you want to live when you stop working will determine how much you’ll need to save, so consider taking stock of all your long-term savings. This could include pensions, ISAs and other long-term savings pots. You might want to consider consolidating your pension pots as having them all together can simplify management and potentially even reduce fees.
Reassess investments - in your 40s, it’s time to make sure any investments you have are working for you. Too risky? Too conservative? Now’s a good time to tweak things.
Pay off large debts - clearing off your mortgage or large personal loans should be a priority. The fewer debts you carry into your later years, the less money you’ll be paying on interest and the less stress you’ll endure.
Pre-retirement (ages 50-60)
Retirement is now closer than it is far off, and it’s time to ensure your nest egg can actually support you through those blissful, work-free years.
Finalise retirement plans - if you’ve not had a good look at your retirement plan, now’s the time. Do you have enough money? Will it last? Booking a free Pension Wise appointment, a free government-backed service from MoneyHelper or speaking with an Independent Financial Adviser (IFA) might be a sensible move at this point.
Downsize or declutter - this might be the perfect time to consider downsizing your home to reduce your housing costs, leaving you more money to save for your retirement years.
Review estate planning - make sure your will, power of attorney, and any trusts are up to date. The last thing you want is your assets to go somewhere unintended. It’s key to remember that your pension isn’t technically part of your estate. So while you can include it in your will, it’s crucial to let your pension provider know who your beneficiaries are. If you’re a PensionBee customer, you can do this in your online account, known as your BeeHive.
Consider long-term care insurance - health costs tend to go up as you age. While no one likes to think about it, planning ahead can save your family a financial headache.
Retirement (ages 60+)
You’ve made it! However, retirement doesn’t mean you stop planning. Now, it’s all about managing your savings and making sure you’re financially comfortable for the long-term.
Manage withdrawals - depending on the type of pension you have, there will be different access rules depending on your age. If you’re eligible, you’ll be able to take the State Pension at 67 (rising to 68 in 2028) whereas with workplace and personal pensions, the access age is 55 (rising to 57 in 2028). There are also rules when it comes to tax-free withdrawals. For example, only 25% of your pension can be withdrawn tax-free – and the rest gets taxed as income. To ensure your money lasts, try to pace your spending during retirement. A good rule of thumb is to withdraw 4% of your savings annually whilst the rest remains invested and will allow it to still potentially grow.
Plan for healthcare - while you can use the NHS should you need it, additional healthcare needs might arise. Keep some savings for private care, just in case.
Consider inheritance plans - if you’re feeling generous, think about how you want to leave a legacy. Whether that’s helping out the grandkids or leaving a donation to your favourite charity, make sure your financial plans are clear. Remember, leaving money in your pension can save your loved ones Inheritance Tax (IHT) so it’s definitely worth considering where your money and assets are. For more information, read PensionBee’s IHT guide.
While it’s easy to save into a pension, it can be more complicated when it comes to withdrawing. If you aren’t sure what your options are, PensionBee has a blog all about accessing and withdrawing your pension.
Maria is a Journalist and Writer who previously worked as Global Editor at Female Invest. Her writing focuses on gender equality in finance. She’s also written for a variety of other publications including Harper’s Bazaar, The Telegraph, inews, Metro, Glamour and more.
Risk warning
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.
