Setting realistic financial goals in your 40s – and beyond

6 min | 19 February 2024

The Chase team

We share how you can build on the accomplishments of your 20s and 30s and protect them for the future.

Your 20s and 30s are usually a good time to figure things out and lay the foundations for financial stability. In your 40s, you now may be able to enjoy the rewards of what you’ve accomplished so far – and keep an eye on what lies ahead.

We share tips that can help you make the most of the present and build towards a fulfilling future.

Clear most of your debt

By now, apart from a mortgage, you may be well on your way to being debt free.

Much is made of clearing your credit cards and loans, but how does it actually benefit you? If you were debt free, rather than paying off those debts each month, you could be contributing that money towards your investments or pension.

Assess your pension payments

Retirement may still seem a long way off, but it’s worth thinking about the way you plan to spend it – and whether your savings will match up.

'As you progress in your career,' Claire Exley, Head of Wealth Services at Nutmeg (Opens in new window) explains, 'you may have moved jobs and ended up with pensions, investments and savings in a number of different places. It might be worth exploring whether there's a benefit to bringing these together and how they could help you get closer to your goals – knowing what you've got can be the first step to getting you there.' Before you transfer, check you won’t lose any guarantees or benefits and that you know what charges you may incur.

UK taxpayers under the age of 75 can get tax relief (Opens in new window) on pension contributions up to 100% of their earnings from employment or trading income, up to the government-set pension annual allowance, whichever is the lower of the two. The annual allowance is currently £60,000. If you're a high earner (over £200,000 per annum), your pension annual allowance can be reduced. If you have no earned income, you may still get tax relief on pension contributions up to £2,880 net.

Tax savings from pension contributions are based on a person's marginal tax rate, so higher rate and additional rate taxpayers benefit at higher rates of tax relief.

The minimum annual income required to meet one’s basic needs in retirement has been calculated by the Pensions and Lifetime Savings Association (Opens in new window) (PLSA) at Loughborough University as £14,400 (or £22,400 a year for couples). In order to generate a pension pot large enough to sustain that amount in your retirement years, you'd usually need to contribute regularly.

To achieve that amount by a retirement age of 68, a 50-year-old with pension pots valued at £50,000 would need to contribute £1,123 each month until they are 68, this figure is based on getting a 5% return each year (according to the Nutmeg pension calculator (Opens in new window)). Please note that returns can vary, and achieving a consistent 5% return for each year that you invest is unlikely.

Contributing £1,123 each month adds up to a yearly total of £13,476 – well below the annual £60,000 threshold.

Of course, if you’re planning to travel or purchase a holiday home, your monthly outgoings are likely to be higher.

The PLSA estimates that a comfortable standard with 'more financial freedom and some luxuries, including three weeks in Europe every year, would require £43,100 a year for a single person (£59,000 for couples).

And even the contributions towards that amount would still be well below the tax-free (Opens in new window) limit. At £3,911 a month, that’s £46,932 for the year.

Those with a taste for luxury may still want a higher annual pension income by making additional pension contributions, but if your pension contributions exceed your pension annual allowance or your earned income, your pension provider or you will need to pay the tax (Opens in new window) on any excess contributions.

Consider life insurance

'In your 40s and beyond,' Claire explains, 'you may have taken on more financial commitments, and you may have people who rely on your income, so you may want to think about whether there's any other protection you need.'

For example, depending on the level and type of cover you choose, life insurance could cover your mortgage payments were they to fall to your loved ones after your death or help support your partner or child if you died before them.

Additionally, Claire notes, 'If you have any excess funds left over after your essentials and you do have children, you might want to look into starting Junior ISAs for them. That way, you can put away £9,000 per year for them – income and gains within the Junior ISA are tax free.'

Diversify your investments

You're likely to have already started investing in some form – for example, if you own your home, you’ve made an investment in property, or if you have a pension, your money has been invested in various companies.

As you continue to invest, perhaps by investing in the stock market, and you can tolerate the risk of losing money, you may want to consider diversifying into other asset classes. In theory, this could help you spread risk and aim towards maintaining a more consistent income overall.

There’s no single set way to diversify – generally, it depends on your own personal and financial goals.

Whether you’re looking for long-term returns or keeping your money in cash, understanding your needs and researching the options available will help you determine the best diversification strategy for you.

Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products and lifestyle management. Tax treatment depends on your individual circumstances and may change. This article provides general information on the current position. These articles are not tax, legal or financial advice. Readers are responsible for their own tax affairs and should obtain advice if they are unclear as to their tax position. Articles may reference products and services that Chase UK does not currently offer. For full details on the products and services Chase and Nutmeg do offer, please refer to their websites.

As with all investing, your capital is at risk. The value of your portfolio can go down as well as up, and you may get back less than you invest.

You can normally only access your pension from age 55 (57 from 2028).

To open a Junior ISA, your child must be under the age of 18, and funds cannot be withdrawn until your child turns 18.

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