In your 40s? Are you ready for a 33 year retirement?

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  • Nearly 140,000 of today’s 40-year-olds are expected to live until they're 100
  • This means 33 years’ worth of income will be needed if they give up work at 67
  • Financial experts highlight there is time and opportunity to act on this now 

Hundreds of thousands of workers in their 40s are on course for a £250,000 deficit in the savings they need to fund life after work – unless they take action now to plug the gap.

Nearly 140,000 of today’s 40-year-olds are expected to live to see their 100th birthday, which means 33 years’ worth of income will be needed if they give up work at age 67.

Though the shortfall in funds appears bleak, financial experts are keen to point out there is both time and opportunity for reluctant savers to turn around their fortunes.

How to fund a happy retirement

Insurance giant LV= has conducted extensive research into the particular pension challenges facing those in their 40s.

Its work shows that this age group believes it will need some £1,454 a month to give themselves a financially secure retirement. Yet the value of their pension funds is currently little more than £50,000, hence a potential savings deficit in retirement of £250,000 after the state pension is factored in.

John Perks, a director at the insurer, says: ‘While we would always encourage people to take control of their pension savings as early as possible, it is important that people in their 40s realise it is not too late to make changes.’

The key is to continue saving into a pension, especially if you are a member of a work scheme or have recently been auto-enrolled into an employer sponsored pension.

You will benefit from both your employer paying into your pension as well as the Government via tax relief.

Andy James, of wealth manager Tilney, points out that workers who have been ‘auto-enrolled’ into a workplace pension will see their contributions continue to increase – to 4 per cent after April 2019. But he warns it will not be enough and you should be aiming to contribute between 12 and 15 per cent of your gross income into a pension.

He adds: ‘Such a high contribution is likely to be beyond many who are struggling with other financial commitments, so increasing payments little by little is a good approach. Think about upping contributions when you get a pay rise, so you are less likely to notice the extra cost. Tax relief on money put in a pension will also help increase the amount saved.’

The over-40s should also spend time tracking down old, lost pensions – and investigate whether consolidating multiple pensions into one fund could save both money and hassle. Perks says: ‘Everyone, not just the over-40s, should be checking their pension pots on an annual basis. We also strongly recommend they speak to a professional financial adviser to help them make the most of their hard-earned pension savings.’

It is also wise to review whether or not a full state pension at retirement is likely, or whether a National Insurance record needs to be built up further. The self-employed or workers ineligible for auto-enrolment can still open a personal pension and benefit from tax relief on their savings.

Using tax-efficient Isas to help build retirement funds complements pension saving. Currently, you can save a maximum £20,000 a year in an Isa. Although there is no tax relief boost on contributions, all the proceeds from an Isa are tax-free and there are no constraints on when withdrawals can be made.

Other age groups

Pensions can seem complex, littered with rules and jargon. But irrespective of age or financial circumstance there are some simple steps you can take to set yourself up for the best possible retirement.

The Department for Work and Pensions advises employees in their 20s to stick with auto-enrolment and increase contributions when they can.

Workers a decade older who decide to add more to their pension each month might find their employer is willing to match their contributions, so it is worth checking.

People nearing retirement should seek advice – or at least guidance from the Government’s Pension Wise service.

They should also check their state pension entitlement and pay attention to any ‘wake-up packs’ landing on the doormat from private pension providers, which contain important information about how they can turn their pension into retirement income. Retired people should claim any extra help they are entitled to.

Four in ten pensioners are thought to be missing out on Pension Credit – a non-taxable benefit for those on low incomes. More than £3 billion goes unclaimed every year. Visit gov.uk/pension-credit to find out more.

People still in work should also find out what help might be available if they need it.

A freedom of information request to the Department for Work and Pensions by insurer Royal London indicates that the majority of carers looking after disabled people are not claiming special credits that would boost their state pension.

Many carers will be upward of the age of 40, including those looking after elderly parents. For more information about Carer’s Credit visit gov.uk/carers-credit.

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This article was written by Laura Shannon from Financial Mail on Sunday (Daily Mail) and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.