Are you good with money? According to Harvard University, if you’re in your early fifties or older, you may well be losing your ability to make sound financial decisions.
In a pioneering new study, the researchers found that anybody over 53 will experience a ‘tipping’ in their brain function, where the brain’s ‘crystallised intelligence’ (skills acquired by experience) no longer offsets the decline in their ‘fluid intelligence’ (the ability to solve new problems).
Coupled with the significant cognitive impairment that affects over half the world’s population of over-80s, your mid-twenties to late forties seem to be the best time to take stock of your finances and prepare for the future. As recommended by the London School of Business and Finance, here are some top tips to help you prepare for your future now.
Opt into a pension fund
Although most people start their first professional job in their twenties, very few even think about saving for retirement at this stage. As soon as you start full-time work, look into the pension options that your company offers. This is a tax-efficient way of saving that is great for those who are prone to going over-budget – you won’t be able to touch your allocation until you reach retirement age.
If a workplace pension policy is in place and you’re not opting into it, you’re essentially turning down free money – most companies will pay between 3% and 10% of your annual salary each year into the fund on top of your contributions. You can also take out a personal pension, where you can pay a sum in regularly to a pension provider.
Open a tax-free ISA
By placing some money away each month in a tax-free ISA, you can build up a healthy ‘rainy day’ fund that will come in highly useful when you reach retirement. Up to an annual limit of £15,000, any money you save in this account will be free from tax, stored either in cash or as stocks and shares.
Providing a saving of 20% for basic-rate tax band payers, and a huge 40% for those on the higher-rate, this is the perfect way to ensure that you’re not frittering your wages away on formalities. Make a spending plan and aim to place at least 10% of your months wage away in savings – it may not seem like much, but it will soon build up.
Consider downsizing to cut your mortgage
When approaching retirement age, many couples choose to stay in their family home, despite no longer needing the space. While it can be difficult to say goodbye to something as sentimental as your first home, downsizing can significantly cut your mortgage repayment rates and leave you free to enjoy retirement without the weight of a loan hanging heavily over your head.
A smaller home will also mean less council tax, lower heating bills and even an improved feeling of security. Be sure to relocate to a home that will suit your elderly needs when the time comes, whether it be a low-maintenance garden, closer proximity to friends and family or even scope for adaptations such as wheelchair ramps and safety rails.
Stave off sedentary retirement
If you’re not ready to kick back just yet, you still have a right to work as long as you are fit and healthy. Delaying retirement will give you more time to save, consider your next steps and keep active minds busy. It’s also a great way to match your retirement plans with a slightly younger partner. Whether it’s downsizing to part-time hours, taking up some paid volunteering or even taking up a scholarship at university, retirement doesn’t have to mean doing nothing. Opportunities to get out of the house and stimulate your mind will keep you feeling social without spending great swathes of cash, leaving you free to use what money you have saved on bills, living costs and holiday treats.