Three Powerful New Year Financial Goals For Your Forties

Three Powerful New Year Financial Goals For Your Forties

Your forties is a pivotal decade. I see it as a bridge between your younger self and your retirement years. Your twenties and thirties are fun and time for discovery and your fifties and sixties are time to think about retirement and for most, switching jobs to things that excite them more.

I see your forties as the decade to truly lock down your finances. Again, let’s be clear I’m addressing the average forty-year-old as there are some that would say surely at forty you should have hit your financial freedom or financial independence goals.

Getting a handle on your finances include

  • Making sure all debts have been cleared (excluding mortgage)

  • A robust retirement savings plan in place and yes pension and not property investment is what I’m talking about

  • Life insurance and Will

  • Saving and Investing for the family including Junior ISAs for the kids.

Assuming you have ticked all the boxes above, what next then? Below I set out the three goals you should consider adding to your new year financial resolutions in your forties.

Goal #1 - Pay down your mortgage

For those that own their homes, are you still on track to pay off your mortgage by the time you get to retirement age?

Setting this as a new year goal should be one of your priorities as you have between 15 to 25 years to clear your mortgage so that you can outrightly own your home in retirement.

Why is owning your home in retirement important? First, it means that you have one less expense to worry about. Secondly it is a sizeable expense and accounts for 30% to 50% of most household’s disposable income. So, making sure that you don’t have to worry about housing in retirement will put you in a great position.

Next step is to find out your outstanding mortgage and time to left before it is paid off. If repayments take you past age 65 then you should think about overpaying your mortgage to reduce the time to repayment.

However, if you still have the opportunity to contribute into a pension and get contributions from your sponsor then I’d suggest you consider doing that first before you overpay mortgage as I explain here

For those that plan to continue renting in their retirement, I’s extremely important to check that your retirement income can meet all your expenses in retirement. If this is not the case, then you will need to start saving/investing more.

Goal #2 - Assess your retirement fund

Most people don’t really know how much they require in retirement and for how long.

This makes planning for retirement quite tricky for most. If you have a handle on your mortgage as discussed above, then when it comes to retirement you won’t need to make mortgage payments anymore.

For most of us, mortgage payment is about 30% to 50% of our disposable salary. Therefore, if we do not need to worry about mortgage in retirement then we do not need our full salary in retirement. In fact, most people would be ok with 30% to 60% of their salary in retirement.

If you have a final salary or Defined Benefit pension, then it’s a bit more straightforward to check what percentage of your salary you could get in retirement.

However, if you have a Defined Contribution pension which most of us do then you get a pot of money when you come to retire and you must decide (well, with the help of a financial adviser) what to do with it.

With this type of pension, you could use the simple steps below to check how much your pension pot needs to be to meet your retirement spending.

  • Assume current salary of £30,000, and

  • You want 40% of your salary in retirement to cover your expenses - £12,000

  • If 3% return from your estimated pension pot is £12,000 then you’ll need to have built up a pension pot of £400,000 when you come to retirement

  • Now apply the same steps to your own circumstances and see how much you need and what you have saved up. If there’s a huge gap, then start putting more away now.

Goal #3 - Plan the switch

This time I’m not talking about the immediate financial plans for retirement like pensions and mortgages.

Instead, I’m talking about planning for what I like to call the retirement gig. Yes, retirement may still be 15 to 25 years away but thinking about things you’ll be doing in retirement should start earlier.

Some would answer that their plan is to travel round the world in retirement. While this sounds amazing, it would probably take you one to two years to give it a good go and what next for the remaining years of your life in retirement?

Here are some suggestions of retirement roles. Please feel free to share yours in the comment section too:

  • Doing voluntary work for a charity you are passionate about

  • Finding work in your immediate local community to keep you busy

  • Trustee of a charity, governor of a school and so much more

  • You could plan to start a new business, but this would require a lot of passion, dedication and discipline and maybe too much of an ask in your retirement years.

  • However, you could spend your forties defining what these businesses would involve. As for me, my retirment gig will include soemthing relating to finance, properties and education.

Bringing it all together

As I mentioned at the start, your forties should be the decade for truly locking down your finances and starting to think of other more exciting things to keep you going in your retirement. As such, when planning your financial goals for this year, consider including these three:

Goal #1 - Pay down your mortgage

Goal #2 - Assess your retirement fund

Goal #3 - Plan the switch

It is also worth mentioning that regardless of your age, you may find yourself setting goals that captures some of the goals from those in their twenties and thirties.

If you would like to discuss your financial goals for the year, then get in touch and I may be able to comment on a few of them.

Good luck and have a fantastic year ahead.

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