Abraham Lincoln once said: “After 40, every man gets the face he deserves.” I guess he had his tongue in his cheek when he said that but, if it’s true, I’m pretty sure it will apply to every woman as well!
And, as I look in the mirror with the Lincoln quote in mind, I tend to feel pangs of remorse about my own misspent youth. But there’s another potential consequence of life hitherto spent hard-partying and living to the fullest. And that is – after 40, everyone tends to end up with the bank balance they deserve!
But if you’ve reached 40 and arrived without any meaningful savings, don’t fret. It really isn’t too late to make a big difference to your income in retirement.
Indeed, at 40, you’re still relatively young, whatever the mirror has been telling you. In fact, if you approach saving and investing sensibly and with determination, you probably have a reasonable shot at retiring rich. Here are some tips to help get you started…
Make a commitment
At 40, you still have the best part of three decades before you’ll be eligible to draw your State Pension. And I reckon you need to make a commitment to save and invest as much money as you can during those years so when you do retire, you can draw on that pot of money alongside the State provision.
And making regular monthly payments to your retirement fund is one of the best approaches. Getting into a saving habit like that will likely help your retirement money to grow without much pain. Once you get used to putting a fixed amount away each month, you’ll get used to living without it and will barely notice!
Tax-efficient wrapper
But it’s no use putting the money into a cash savings account. That’s because the interest rates are so low these days that the spending power of your money will struggle to keep up with the effects of inflation.
Instead, I’d aim to pay regular money into a tax-efficient wrapper, such as a Workplace Pension, a Self-Invested Personal Pension (SIPP) or a Stocks and Shares ISA. The tax advantages with such vehicles will help your money to work hard for you.
Shares and share-backed investments
And within those wrappers, the ultimate destination for your savings should be shares and share-backed investments, in my opinion. Studies have demonstrated that over the long haul, shares have out-performed all other major classes of assets, such as cash savings, property and bonds.
If you invest in a Workplace Pension, the money will likely be invested in managed stock market funds for you. But if you opt for a SIPP or a Stocks and Shares ISA, you’ll be able to choose between managed funds, low cost, passive index tracker funds and individual company shares.
Whichever you decide, I reckon its key to reinvest all the dividends you’ll receive so the process of compounding can operate to the maximum, and give you a shot at retiring rich!
