Best way to save for retirement in your 40s UK (Take these actions)

The best way to save for retirement in your 40s UK involves a few practical and behavioural actions. Understanding your current situation, sorting out your paperwork,  defining what good looks like and automating your efforts are great places to start.

So you have got to your 40’s, and finally, you have realised you are not going to live forever, or more importantly, you don’t wont to work forever.  

You’re possibly married (or now divorced), with kids, a mortgage and a series of other payment schedules that seemed to have eaten away all the millions you earnt over the years!

Hmmm, or is it because you haven’t earnt millions, yeah that’s what it is, the career (whatever one of those is) wasn’t as lucrative as you first thought.

And as a result, you are now starting to think, hmm pension what’s one of those then?

The good news is you still have enough time to get a decent pension (decent may be a relative term but let’s go with it for now) or at least far better than you currently have.

The bad news is you need to take action NOW.

You need to leave the procrastination station and take action. You need to save your older self from your current self.

Best way to save for retirement in your 40s UK

Double Gherkin’s please

When you are old – flipping burgers won’t seem that bad, will it?

Imagine yourself nice and old.

Yes, your now a silver fox playing volleyball on the beach, sky diving and all the other things retired people do. Or maybe you’re not, your actually still working.

Can you imagine yourself doing what you are doing now for decades to come? Can you imagine your self-doing something else for money?

Will your job or industry even look the same or require the same skills? As a thought experiment, are you using any of your college or degree level learning?  Or have some or many things changed completely since you graduated?

Are there any other things you would like to do with your time other than work for money? Travel, learning, hobbies and interests? Nope, you just want to work for money forever?

Now that we have had a very quick view of what your later working years might be

Acceptance of reality

If your finances don’t look that great, you can try two tracks.

1. Denial – no it’s not it’s great. I’ve got as much as everyone else more or less, I think? I’ll make it up later, definitely maybe.

If you’re anything like me you are saying things like “nope definitely don’t have a toothache, no need to see a dentist….yet” and then a few days later “I need to see a dentist NOW!”

Let’s not get ourselves into a financial situation like this. Just as with a dentist, the longer you wait, the more painful and expensive it gets to put it right, if it can be put right by then.

2. Start adulting – Take a cool, calm, collected view of your finances. Take time to look into what you could do to organise them better, how you could reduce some of your costs, and consider your options to start growing your money.  

Accept the reality, your finances might not be that good, so there is no better time than now to start sorting them out 

Best way to save for retirement in your 40s UK

Of course I kept the receipt!

Sort out the financial mess – one envelope at a time

First, get all your financial papers and file them in some order. In other words, take them out of the shoebox of shame or the draw of doom and look at them.  

You could separate them into pensions, bank accounts, investments, insurances, personal and household finances.

This will significantly help with the clarity of your current position and hopefully ease some of the money stress about not knowing where everything is.

From this position, you can figure out your net worth everything you owe vs everything you own. This is your starting position.

Figure out what you need to live off in retirement

What does life currently cost you? Do you know? Maybe you should find out!

Are you expecting any major changes once you can’t or don’t want to work anymore?

  • Will the kids have left home?
  • Will the mortgage be paid off?
  • Will you be near to the government pension age 67ish (at the moment)
  • Are you expecting a massive inheritance? (don’t count your chickens yet though)
  • Will you still want to work even just a little bit?

Do you know where your money is going to come from to live off?

This 2019 article from WHICH details the different types of retirement and what size retirement pot might be needed.

Two-person household Income needed a year
Luxurious lifestyle £42,000
Comfortable £27,000
Essential £18,000
Lifestyle costs at retirement

The article’s conclusion is that you likely need a pension pot of at least £200,000 alongside the state pension for a comfortable retirement of £27,000. This may or may not be enough for you so best to do your own calculations alongside this to see what you need to do in your circumstances.

What the figure of £200k does do is give you a sense of what you might need to save depending on the lifestyle that you want.

Best way to save for retirement in your 40s UK

Someone out there has my money!

Track down old pensions

As part of the above calculations, it’s going to be very useful to track down old pensions to add to your calculations.

If you think you might have pensions from old jobs but can’t find any details you can try this.

Try and remember when and where you work previously and then try and track down any paperwork you can: old payslips, contracts, p60’s or P45’s.

If the company still exist, you can try and call them directly to find out if there is a pension there with your name on it.

If you can track down any paperwork or the company itself you can try and track down old pensions using the pension tracing service.  

If this feels a little like admin just remember it’s YOUR MONEY you are trying to find.

Maximise employer contributions

If you are an employee, it’s highly likely your company offers a workplace pension and likely provides some match amount for your contribution.

Make sure you are getting the maximum amount of match available or in other words getting the full amount of FREE MONEY.

i.e. you need to put in 5%, and your company matches up to 5%. So, it would be good to find out what your company will match up to and ensure you get that maximum match.

Make a top-up payment

You could make a top-up payment into your pension to boost its value.

The advantage of this would be you would also get some of the tax back that you paid on the money when you earnt it.

The disadvantage of this would be that you wouldn’t be able to get access to that money until you reached pension age.

You just need to make sure you won’t be needing that money before you can access it again.

Best way to save for retirement in your 40s UK

Come with me if you want to live

Automate your savings

Automating your pension savings could be a key behavioural way to boost your pension savings.

With your savings happening automatically, it takes you out of the decision-making loop. You set it up once, and it just keeps happening.

However, if you need to make it happen every month, login, make it happen, you might well keep missing or avoid doing it.

Let the automation habit take the strain of building you a much bigger pension pot than if you were login in and out doing it manually.

Are you financially, literate?

When it comes to money, making it, keeping it and growing it, do you know your arse from your elbow?

It’s nothing to be ashamed about. You were probably never taught it. But it is a thing to put right.

You might well know how to make decent money but keeping it is often our biggest weakness, never mind investing and growing it.

Do you understand terms like?

  • Compound interest: interest on your interest compounding on your original sum.
  • Diversification: not having all your eggs in one basket
  • Do you know your freedom number? The amount of money you need to make work optional.
  • Risk vs reward: higher returns usually mean higher risk
  • Active vs passive investing
  • Investing vs speculating: long term vs short term thinking

Getting to understand these and other financial terms will help demystify money and help you to start planning your financial future. Avoiding the drift into financial stress and anxiety.  

Financial planning

Plan for the life you want

FAQ: Saving for retirement at 40

There are a few key things to do in order to prepare for retirement in your 40s:

1. Start saving as early as possible. The more time you have to save, the more money you will have in retirement.

2. Contribute to a pension. These accounts allow you to save money on a pre-tax basis, which means you will pay less in taxes now and have more money to invest for retirement.

3. Save as much money as you can in short and long terms savings vehicles.

4. start invesitng in appreciating assets such as real estate, low cost index trackers and creating your own business.

5. Invest in strengthening your skills and experience.

Saving in your 40s for retirement will involve taking a number of key steps. These include:

1. Setting a clear retirement savings goal and making sure you are on track to meet it. This may involve using an online retirement calculator or working with a financial planner to assess your current situation and determine how much you will need to save each month in order to meet your goals.

2. Reviewing your current retirement savings plan and making adjustments as needed. This may involve increasing your monthly contributions or changing the mix of investments in your portfolio.

3. Automating your retirement savings so that you are automatically contributing each month to your chosen retirement account. This will help to ensure that you are consistently saving and making progresstowards your goals.

4. Creating a diversified portfolio that balances risk and reward, with an emphasis on long-term investments such as stocks, mutual funds, and real estate. This can help to maximize your returns over the long term while minimizing the risk of loss in any given year.

5. Taking advantage of tax-advantaged retirement accounts such as private and wrokbased pensions. These accounts allow you to save on a pre-tax basis, which can lead to significant tax savings over time.

6. Staying disciplined with your retirement savings plan and avoiding the temptation to withdraw funds for non-retirement purposes. This will helpyou to maintain your long-term savings trajectory and ensure that you are able to achieve a comfortable retirement in the future.

One of the best ways to invest for retirement at age 40 is to start saving as early as possible. The more time you have to save, the more money you will have in retirement.

Start by contributing to a pension. These accounts allow you to save money on a pre-tax basis, which means you will pay less in taxes now and have more money to invest for retirement.

Save as much money as you can each month. If you can’t contribute the maximum amount to your retirement accounts, try to at least save 10% of your income.

Invest in a mix of stocks and bonds. Stocks offer the potential for higher returns, but they also come with more risk. Bonds tend to be less volatile, but they also offer lower returns.

Consider working a financial planner or coach to help you plan for retirement.

Conclusion: Best way to save for retirement in your 40s UK

Best way to save for retirement in your 40’s UK style by:

Making yourself aware of where you are now and what a comfortable retirement looks like to you will be a significant first step.

Collecting and collating your paperwork will ease some of the mystery as to where everything is.

Ensuring you are taking advantage of free money from employers will be a handy boost in building up your assets.

Automating your savings so that it just happens will be your stealthy way of growing your retirement pot.

Improving your financial knowledge and money habits around saving and investing will be a wealth compounding process. The more you know, the more your money can grow.

Anyway those are my thoughts on the best way to save for retirement in your 40s UK let me know yours in the comments below.

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How to retire early with little mon...
How to retire early with little money

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