Saving for retirement in your 40s and 50s

Retirement saving in your 40s and 50s can take on new significance, as the day you begin withdrawing from your pension pot draws closer and closer. 

It’s easy to find your pension an overwhelming topic, and you likely have many questions.

How far are you from retirement? Should you increase your contributions? Is your workplace pension good enough? What will retirement look like for you?

And of course, the classic “How much do I need to retire?”. 

Let’s look at how you can approach retirement saving in your 40s and 50s, helping you to get your future plans in order. Remember, this isn't investment advice. Seek professional advice if you need help with your pension.

What does your retirement look like?

The best place to begin is by considering what your retirement savings look like at the moment, as well as what you want and need to get from retirement.

How much should be in your pension pot at 40?

A common guiding principle is to have twice the value of your current salary in your pension pot by the age of 40. Often, that chimes with the goal of having seven to ten times your salary put away by the point of retirement at 68 (the age at which the state pension will likely kick in for most people). 

Broad estimates from the ONS show the average life expectancy for a 40-year-old male is 84, for a 40-year-old woman, that rises to 87. Both have a fair chance of reaching 90 and beyond. As such, your retirement savings might have to last for at least 20 years. 

How much should be in your pension at 50?

If we follow the same guidance, that pension pot should be four times the value of your salary by the age of 50. It might sound like a huge leap from a decade earlier, but remember, further to your contributions and tax relief over the period, you’ll hopefully also have investment growth, compounding and workplace contributions aiding your pot’s growth.

Given that the youngest age at which you’ll be able to access your pension will be 57 from 6 April 2028 (up from 55 currently), you might also want to really concentrate on those contributions in your 50s. The reason pension saving in your 50s can take on a different hue is that it’s the first decade you can think about putting money to work as you enter the period and take it out towards the end.

If you do want to retire at 57, racking up those investment returns and tax relief becomes more important than ever.

You might also be more willing to have the likes of a Christmas bonus go straight into your pension, as it can attract tax relief, won’t be taxed immediately, and can be accessed relatively soon after.

💡 Check out our pension tax relief guide to understand how much money you can put into a pension.

Life moments shape retirement expectations

Depending on what happens in your life, you might have more or less money available to contribute to your retirement savings pot at different times.

Consider things such as the following: 

• Have your earnings peaked? The ONS says average earnings peak at 47. You might have more income available to contribute to your retirement savings 
• Are you providing for your children? The average first-time mother is aged 29 in England and Wales, so it is likely your 40s and 50s might coincide with costs relating to your children. This might be childcare, university fees, or supporting adult children who are just starting their careers.
• Do you need to provide care for elderly relatives? More than a quarter of all people providing unpaid care are in their 50s. Helping to look after elderly relatives can be stressful and emotionally draining. It might even mean taking time off work or moving to part time hours, potentially reducing your ability to make pension contributions.

Thinking about how your personal circumstances will impact your ability to set money aside for retirement is important when arriving at realistic retirement goals. Think about the obstacles and opportunities in your life that could help or hinder your retirement planning. 

Smart ways to improve your retirement savings

Open a SIPP

A Self-Invested Personal Pension or ‘SIPP’ is a type of account which lets you decide how your pension is invested.

You can have a SIPP as well as a workplace pension scheme, or decide to take charge of all your retirement savings. 

It’s easy to open a SIPP account, allowing you to keep an eye on your savings and plot your path to retirement.

Use an ISA for retirement savings

An ISA can play a part in retirement saving, especially if you’re planning on retiring early. That’s because you can withdraw from an ISA at any age, while taking pension income is only possible once you are 55.

If that sounds unfeasible, taking ISA income to supplement your earnings might allow you to reduce your hours until you can finally stop work altogether. ‍

Consolidate your pension in one pot

According to the Pensions Policy Institute, around £31.1bn is currently sitting in the roughly 3.3 million lost or unclaimed pensions in the UK.

Don’t become part of this statistic.

The ease of keeping all your pensions in one place might be a reason to consider a SIPP transfer.

Other reasons might be that your current provider(s) have pension fees, limited investment options, or poor visibility of what you’re actually invested in.

Review your National Insurance contributions

Your state pension will likely amount to a significant amount of your income during retirement. As such, it can be wise to make sure everything is in order with your National Insurance contributions. 

You can check your National Insurance record online to look for gaps. If there are gaps, you can make voluntary National Insurance contributions in order to ensure you receive as much state pension as possible. 

How to catch up

The above tips are sensible for all retirement savers, but what should you do if you have fallen behind? 

When looking at your retirement goals and the current state of your pension savings, you might find there is a major disparity between them. You might not have even started saving for retirement. 

If this is the case, do not despair. There are steps you can take to catch up to other savers and make your retirement dreams a reality. 

• Lump-sum contributions: If you have spare cash from bonuses or inheritance, consider making lump-sum contributions to your pension. Thanks to tax relief, even a one-off payment can grow significantly over the years. For example, a £10,000 pension contribution could cost you as little as £8,000 after tax relief if you are a basic rate taxpayer.
• Downsizing property: Moving to a smaller property can free up a large amount of capital for retirement savings or debt reduction. It might also cut your living costs, reducing your pension income needs.
• Delaying retirement: Working for longer can dramatically improve your retirement outlook. It’s a double whammy of more years of contributions and fewer years of relying on your savings. 

You might have to make more compromises and difficult decisions, but don’t let that stop you from pursuing the retirement you deserve.

How much should I contribute to my pension?

There is no hard and fast rule to how much you need to contribute, but think about your personal retirement needs and your ability to put money to work.

As we have already noted, rough guidance indicates it's a good idea to have twice your current salary in your pension pot by the age of 40 and four times your salary by the time you are 50. 

In addition, the so-called “4% rule” suggests you can withdraw 4% from your pension in your first year of retirement. In following years, you take out the same amount adjusted for inflation. 

For example, a retiree with a pension pot of £300,000 could withdraw £12,000 in their first year of retirement. With an inflation rate of 3%, their second year would see them withdraw £12,360. And so on and so on. 

Use this guidance and your own personal retirement goals to measure how on-track your retirement savings are. If things don’t quite tally up, it might be time to increase your pension contributions. 

Here are five things to consider when contributing to your pension:

1. Maximise your employer contributions. If you increase your contributions, will your employer match it?
2. Set up a regular savings plan. Being disciplined about saving and investing regularly will grow your pension pot and instill healthy financial habits.
3. Consider one off payments. Got a bonus? Why not stash it in your pension? Or just contribute part of it and treat yourself to that holiday you have had your eye on.
4. Keep pace with your salary increases. If you get a raise, make sure your pension savings do too.
5. Bring your pensions together. Having a bunch of pensions from different jobs can be hard to keep track of. Moving them all into one self-invested personal pension (SIPP) might make sense.

Saving for retirement in your 40s and 50s - FAQs

How much money do you need to retire at 50 in the UK?

Retiring at 50 will mean different things to different people, based on their goals and expected lifestyle standards. That being said, let’s do some maths.

Life expectancy for a 50 year old man is 84, while a 50 year old woman’s life expectancy is 87. However, we like to be a bit more optimistic, so let’s assume we will need 40 years of pension income. 

For a moderate standard of living for a one person household, the Retirement Living Standards recommend income of £31,700 per year. 

To sustain this over 40 years, you would need a pension pot of £1.27m assuming no growth or interest. However, with modest growth of your pension pot during retirement a pot size of around £900,000 could be enough. However, factors such as inflation and investment performance make the full answer more uncertain.  

Is 40 too late to start saving for retirement in the UK?

If you’re in your 40s and reading this nervously, you do still have time! 

Starting late means there are likely going to have to be compromises if you want to rack up a decent pension pot - either in your final expectations or what you’ll realistically have to contribute.

Those figures will depend entirely on what you want to achieve and what you can realistically put aside. It may also be that you need to push retirement a bit later than first planned or adopt a higher risk profile with your investments to aim for higher returns.

Of course, this carries the risk that your investments or asset mix will not perform as you’d like. Try not to get sucked into taking enormous risks through fear of an underfunded pension pot. For example, you might want to keep a higher proportion of your portfolio in equities, but you should make sure to keep it within your comfort limits.

Is 50 too late to start saving for retirement in the UK?

As we’ve said, pension saving in your 50s takes on a slightly different meaning. It’s no longer something you put money into with no real view of the end result. It’s also the first time your shorter-term investments can benefit from the addition of tax relief and workplace contributions. 

It’s for that reason that pension investors in their 50s often ramp up their contributions. The clear thinking here is that it’s not long until they’ll be able to access those investments, and the additional benefits can be hard to resist.

Starting a pension in your 50s will obviously not benefit from the value time can add to your investments (if you’re planning to start drawing money relatively soon after), but it might be attractive for the case above specifically.

Important information:

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