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Why you should be saving in your 40s

Are you in your 40s, or on the brink of turning 40? Have you started investing? Here we look at why future you will thank you for making the decision to invest, today.

40s are the new 20s, or so it’s said. It seems that everyone who’s anyone is now in their 40s; from David Beckham to Heidi Klum. When you hit the big 4-0 not only are you joining this enviable club, but you’re also one step closer to that much deserved retirement date.

More good news comes in the form of your earnings; you’ll likely be earning your highest salary when you hit the age of 38, according to official statistics. In the seventies, individuals used to reach their earnings peak at the age of 29. So just as your parents will likely think your work life might take a back seat in your 40s, you know that this is your time.

Reassess your budget

You’ll also likely be at the peak of your spending, typically those in their 40s have a young family and a mortgage to pay. The cost of housing and other living costs have risen faster than wages. This perhaps contributes to the fact that many families in the UK today struggle to save at the end of each month. That makes your 40s all about recalibrating that budget and reassessing your financial goals.

Some of those expenses will seem non-negotiable, so set aside some admin time and do the things you know you should be. Switch your suppliers to free up some extra cash, that means reviewing energy prices, phone contracts and other household services. The sooner you can start to save more, the more likely it is that you’ll be able to maintain the quality of life that you want.

And you’re not looking to be able to save the majority of your savings, figures suggest you should be putting away about 12%. So if you can start saving on your bills that extra £50 a month can take a chunk out of the amount you need to save.

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Saving for retirement

The number of people in their 40s ‘adequately’ saving for their own retirement is in decline. A report from Scottish Widows defines ‘adequately’ as 12%, many company pensions that you get through auto-enrolment will likely get you to about 8%. When you look at other age groups those saving for retirement in their 30s and 50s is on the rise. But from 2015 to 2016 those in their 40s saving for retirement shrunk by 4%.

Some of this can be attributed to changing life patterns, individuals are starting to have families later. A third of adults in their 40s that aren’t working are looking after children, but this is the sandwich generation, and a fifth are looking after parents.

The financial strain on those in their 40s, from both children and parents, makes saving for retirement difficult. But in your 40s you’re still about 20 years away from retirement which gives you a good runway to benefit from long-term investment returns, and means that you can afford to take on some risk with your financial assets.

Starting to invest

When starting to invest the first thing you want to do is to look at the tax wrappers available to you. Whilst the flexibility of an ISA might seem like an attractive option as you deal with the unpredictability of family life, the tax breaks available through a pension can be more beneficial. Particularly for high rate tax payers where you’ll get 40p for every £1, the  equivalent of getting your income tax back.

You’ll also want to consider your time horizon as that will help to define how much risk you can afford to take. If you’ve decided the flexibility of an ISA is what you need, that doesn’t mean your time horizon should be short. If all goes to plan you might not need this money for ten, maybe even 20, years. That means you’ll want more risky assets in your portfolio.

But between reducing your bills, working, and family life, you don’t have much time to look at markets. This is where a company like Moneyfarm comes in. You make the decision to invest, answer a few questions, and transfer money to your account. We assess your investor profile, define a risk level, make investments on your behalf, and constantly monitor markets.

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