Once you’ve hit 50 you could well be on a countdown to finishing up work and thinking about your ideal retirement. It’s typically when you’re consolidating your pensions, getting a clearer sense of what you’ve built – and crucially what gaps might need closing.
While you’re likely to be at your peak earning potential, these are also the years when life can throw you curveballs. The biggest curveball? Your health. But the good news is that with smart financial planning, you can build your financial resilience and protect your retirement from health-related setbacks.
This article isn’t personal advice. Remember, you can normally access money in a pension from age 55 (rising to 57 in 2028). Tax and pension rules can change and benefits depend on your circumstances. If you’re not sure if an action is right for you, ask for financial advice.
How can ill-health after 50 derail your financial future?
Age 50 onwards is a prime time for developing long-term health conditions like diabetes, arthritis, or heart disease, as well as some cancers. So, it’s not surprising that data from 2022 found that around 1.4 million people aged 50-64 are economically inactive because of long-term sickness.
Ill-health can disrupt long-term financial goals and even the best-laid financial plans. Being forced to leave the workforce early can be a triple whammy of impacts on your finances. You stop earning earlier than planned, pension contributions will stop, and you may even be forced to draw on savings that were meant for further down the line.
Health shocks don’t just affect you directly either. Ill-health also impacts those who have a caring role, so even if you’re fortunate enough to have good health, the care needs of a loved one could still put your ideal retirement at risk. The most common age to be a carer is between 55 and 64, with many dropping out of the workforce as a result.
So, what can you do to protect your ideal retirement?
Don’t delay saving for retirement
Start early. Don’t wait to make large pension contributions later in life when your earnings have peaked.
Developing poor health is one of several good reasons why it pays to save as much as you can for retirement from as early as you can. The longer you save in a pension, the more time your money has to grow and compound.
When you start work you should be automatically enrolled into a pension. Maximise employer contributions and consider increasing your personal contributions whenever you get a pay rise. Your pension can also be a great home to invest cash from bonuses or unexpected windfalls.
Get protected
Insurance can help protect you if you can’t work due to poor health – crucial if you’re self-employed or the primary earner. It’s often the first thing a financial adviser will check, because safeguarding what you already have, gives you and your loved ones a solid Plan B.
Critical illness cover is a long-term insurance policy that pays out should you fall critically ill – things like a heart attack or certain types and stages of cancer. But pay close attention to the Terms and Conditions because what’s defined as ‘critical’ can differ between policies.
Income protection acts as a safety net to help fill any income gaps if you’re unable to work because of injury or illness. This is especially important if you’re the main breadwinner in your household.
Health insurance is another important consideration. Having speedier access to services and treatment often prevents health conditions from worsening. With NHS waiting lists causing delays in many regions of the UK, many are choosing to pay for health insurance to assist with any medical needs. But do check the small print on pre-existing conditions.
Before taking out any insurance, check whether your employer already provides any cover as part of your employment benefits package.
Keep track of your pension progress
Saving in a pension at the rate your employer sets may not lead to the retirement you want.
It’s important to keep track of your pension progress so you can identify any kind of shortfall early. Most providers now offer pension calculators that show what you’re on track to get and how much increasing contributions or adjusting retirement dates could change your retirement.
If you’d prefer more of a helping hand, a financial adviser can help map out a plan using cashflow modelling. This is where you can really understand if you have enough money to meet your retirement goals, stress testing different scenarios, including the impact of ill-health.
Self-employed? Don’t miss out!
If you’re self-employed you won’t be benefitting from auto-enrolment, so you’ll need to be more proactive.
Being your own boss has its perks, but it also means you’re responsible for your entire pension contribution – both the personal and the employer. As a result, the self-employed are likely to end up with significantly less in their pensions than their employee counterparts.
If you’re working for yourself, make sure you pay as much as you can afford into a pension, and start as early as possible. Doing so could reduce your tax bill too. As a rule of thumb, about 12-15% of your annual salary should be diverted to a pension pot.
A Self-Invested Personal Pension (SIPP) gives you control and flexibility over how you save and when you retire. It also lets you choose from a wide range of investments all through one easy-to-manage account. Investments and any income from them will rise and fall in value, so you could get back less than you invest.
But if you’re looking for a more hands-off approach, put your pension into expert hands with our Ready-Made Pension Plan.