A Rough Guide to Financial Products for 40-Somethings
Your forties are often a time to evaluate your life and priorities. You’ve built up some life knowledge by now, have reached a point in your career and may well have a family. You probably have responsibilities and plenty of regular bills. It’s time to ensure you have a grip on your finances and affairs as you stagger, slightly more forgetfully, into middle age!
Key Financial Products
So here is a quick rundown of some of the key financial products that can help ensure you and your family are in the best position for the years ahead.
We’re going to start at the end and work our way back. A funeral plan basically allows you to cover the cost of your funeral so that your relatives don’t have to deal with it. And at an average of over £4k, it can be quite a substantial cost at a time of high grief and stress. It’s also a chance to ensure the arrangements are as you’d wish and spare loved ones from having to sort through all the details.
There are many providers out there and it can be confusing knowing who to opt for. Try looking at the Funeral Planning Authority for a list of regulated companies. Ensure you are clear on exactly what your plan covers and if there is anything it doesn’t. Many plans will cover inflation because let’s face it, we are hoping you won’t need this too soon. You can pay in one lump sum, or split the costs, typically over 1 to 10 years. Whatever you choose, let your family know that you have a plan in place.
Retirement may still seem a way off and it may be even further off if the government keep delaying it. However, the sooner you start saving, the easier and better your twilight fund will be. If you have visions of sipping a long gin and tonic on a beach in your latter years, then now is the time to help make this happen.
Most people in employment now have some kind of work-based pension scheme. It is worth knowing the details of yours – how much you are putting in and what this is likely to equate to on retirement. General advice goes that you should put in as much as you can. This is true for work-based and personal pensions. On top of any contribution you put in, the government will add 20% tax relief, and an additional 20% if you are a higher rate taxpayer. These days on retirement age, the funds can be taken in a lump sum(s) or in regular payments. But of course, you need to make sure there’s enough there in the first place. Check out the advice at Moneyfacts if you are 40 and have not yet started a pension.
ISAs have been around a while now and are simply savings accounts where you won’t pay any tax on the interest, ever. The idea is to encourage you to think ahead and save those pennies. There is a limit to the amount you can save in ISAs each year: April to April 2019/20 the government-set limit is £20k. There are different types of ISA to choose from but the main 2 are:
- Cash ISA – a simple tax-free savings account. There is a range of deals and rates available from instant access, to fixed-term deals.
- Stocks and shares ISA – where you invest your savings into the stock market. These ISAs are ideal for those more willing to take a risk, those with market knowledge or those in for the long-term. Over longer periods these typically deliver better returns, but you are usually required you to pay a service to manage the funds.
It’s so tempting to spend any money available, but saving what you can help with all those unseen household expenses and just give you more options.
Life Insurance & Income Protection
Life insurance is a way of protecting your financial dependants in the case of your death. It’s about making sure that there is a roof over the heads of those you live with and ensuring that if they were to lose you, they wouldn’t lose everything else as well. It pays out a lump sum upon your death. Obviously the cost of this depends on the amount that they would need in your absence, but again the sooner you start insuring, the lower the cost will be.
Income protection insurance covers you should you become too ill to work. It will continue to pay you regularly until you recover or retire. If you don’t have dependents, then life insurance may be irrelevant, but income protection worth considering. The MoneyAdviceService can help you evaluate if this is right for you. If you do have dependents, it gives some financial security against illness, but it can be expensive. The amount paid out depends on the amount you put in and you’ll need to consider what you can afford. In difficult times, any amount could help. Check the policies thoroughly so you know exactly what they include.
We all hope for long and fulfilling life. Being organised with your financial affairs now is an investment in your future. Your forties are the prime time to get things in order and pave the way to a smoother fifties, sixties and beyond….