Hitting 50 with no savings is not an ideal financial situation to find yourself in. Yet realistically, it’s not the end of the world either. With the best part of two decades to go until retirement (given that the State Pension age is set to rise to 67 within the next decade), you still have quite a lot of time to get your finances sorted.
Ready to take the first step towards a more secure financial future? Here’s what I’d focus on doing in 2020.
Start a savings plan
It goes without saying that if you have no savings at 50, it’s time to start saving. Now is the time to make this a top priority.
I realise that for many people, saving money is quite hard. UK wages have gone nowhere over the last decade while expenses have risen significantly. Yet there are ways to make saving easier.
Personally, I find the easiest way to save is to pay yourself first. This involves moving a certain proportion of your pay into a separate account before you take care of your other expenses. If this is too hard, start by saving your spare change.
Even if you can only save a little bit every month, it’s better than nothing. You’d be surprised at how quickly savings can grow over time.
Open a tax-efficient account
Next, get your savings into a tax-efficient account. This will help you shelter those savings from the taxman.
One good option here is the Stocks and Shares ISA. This is a flexible account that allows you to save up to £20,000 per year with any gains tax-free. With this type of account, you can access your money at any time.
Or, if you’re saving specifically for retirement, you may want to consider a Self-Invested Personal Pension (SIPP). The benefit of this type of account is that the government will top up your contributions (this is known as tax relief).
I wouldn’t bother with a Cash ISA, simply because the interest rates on offer are so low.
Invest to grow your money
Finally, the last step is to get your money working for you. This is the most important step. You want to get that money that you’ve saved and put in a tax-efficient account growing at a healthy rate so that your savings grow faster than inflation over time.
In my view, the best way to do this is to invest in shares. Over the long run, shares tend to deliver much higher returns than other assets such as bonds, fixed-term savings, and cash savings.
For example, since the FTSE 100’s inception in 1984, the index has delivered an annualised return of around 9% per year. Meanwhile, in the US, the S&P 500 index has generated an average return of around 10% per year over the last five decades. When you compare these kinds of returns to the abysmal interest rates offered by cash savings accounts at present, it’s easy to see the advantage of investing in shares.
Of course, investing in shares for the first time can be daunting. But don’t let that put you off. These days, it’s easy to find information on the basics of investing. The free resources at The Motley Fool could be a great place to start.