The biggest financial mistakes people make in their 40s and 50s

Your forties and fifties can be the most financially stressful two decades of life – even if you may be established in life and career. With children potentially still at home, parents in need of care and a job to juggle, it can feel like your finances are being pulled in all directions. Plus, you could be living with the effects of financial mistakes you made in your twenties and thirties. Shorts Many of us compound early money mistakes with mid-life missteps. The mistakes themselves are nothing to be embarrassed about – it’s how you respond to them that matters. Here are the most common financial mistakes people make in their forties and fifties, and what to do if you’ve made them. Not having a will Writing a will is the kind of life admin that always ends up at the bottom of the to-do list. Three in five people aged 45-54 don’t have one, according to the Association of Lifetime Lawyers. Alex Delaney, 42 and her husband, Nic, had often discussed making a will and even went as far as getting a quote from a solicitor. But the £600 fee seemed like money better spent on mortgage payments and the cost of starting a family. Then the unthinkable happened: Nic died suddenly aged 39. Alex Delaney’s money mistake was not making a will when her husband was alive “There were some financial surprises, which might not necessarily have been different with a will in place, but having one would have meant we’d have had a proper discussion about where each of us stood financially and what our assets were. I should have been more aware of his arrangements,” says Alex. Nic’s pension beneficiaries were not up to date, which meant it was up to the pension provider to decide who would inherit his retirement savings. “At the most basic level, when someone dies intestate [without a will], you have to wait longer for the paperwork to be done, which is terrible, at the worst time in your life,” says Alex. It took her more than three years to settle all Nic’s accounts. Alex’s experience led her to set up Lemons.Life, a financial planning business for women, which she runs from her new home in Chicago. Her advice to anyone without a will is simply to get started. “Many people feel they can’t write a will until they’ve decided everything, and conversations about money are hard. But a simple will gets you going, and you can update it,” she said. Avoiding investing By this stage of life, hopefully you will have built up some savings. But some financial experts a common mistake is keeping it all in cash rather than putting some into investments. Historically, stock markets have delivered better returns than cash, so by not investing you could risk missing out on gains that can help you achieve your future financial goals. “You need between three and six months’ worth of expenses in an easy-access account for emergencies and cash for any big, planned expenses in the next five years,” says Sarah Coles, head of personal finance at AJ Bell. “However, if you have more than this sitting in cash, or you have money you don’t need for five years or more, you’re missing out on the potential extra growth available from investments.” For example, if you saved £100 a month for the next 20 years with an average savings rate of 3 per cent, you’d end up with £32,830. The same amount invested, with an average return after charges of 5 per cent, would grow to £41,103. Coles adds: “Even if you’re still building towards your savings goals, you should consider investing at the same time. Plenty of people put some money into savings and some into investments each month, so they get the best of both worlds.” Of course, with investing, you need to be prepared for the possibility of losing money, as well as gaining it. Ignoring your pension Hopefully you have a pension and are making regular contributions. But are you actively looking after it? Many of us don’t pay a lot of attention to our pension and, as a result, they can underperform, leaving us worse off in retirement. It’s a story familiar to Ali Poulton, 45, from Epsom. Saving for retirement was low on her priorities while she raised children and set up her own photography business. “I didn’t know about pensions or investing. When I started my business, everything I made went back into that rather than into a pension,” says Ali. “My husband started way before I did and has a lot more money in his pension than I have in mine. When I finally understood what I needed to retire comfortably, it felt overwhelming. We’re now having to put a much bigger percentage of my earnings into my pension to catch-up.” Ali’s situation is not unusual. As a self-employed parent, she missed out on a workplace pension with employer contributions. Meanwhile her husband, employed throughout, consistently built up his pension savings. Research from Octopus Money shows that women are far more likely to take time out of work for caring responsibilities, and particularly between the ages of 35 and 54. Even a single year out of work at 30 on a £45,000 salary leaves a woman’s pension pot £27,300 smaller by retirement. “It’s hugely important not to avoid looking at your pension because you are scared you won’t have enough for retirement,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. “Checking in could give you a nice surprise – or, if you don’t have enough, gives you time to put a plan in place. Making a pledge to increase contributions every time you get a pay rise is a good way to approach this,” she says. Taking your pension lump sum too soon Your fifties are when you can first access your pension. While you may have to wait until you are at least 67 for your state pension, you can usually access your private or workplace pension at 55, rising to 57 in April 2028. But the mistake is thinking that just because you can get your hands on your pension, you should, experts warn. From 55 you can take up to 25 per cent of your pension savings as a tax-free lump sum, with the remainder taxed as income when you take it. One in five people take a lump sum as soon as they turn 55, according to investmment firm Legal and General, and 46 per cent said they did it simply because they could. Treating your 55th birthday as a green light to take your lump sum can be a mistake, says Maike Currie, from PensionBee. “A pension has to stretch across decades of retirement, so the longer your money stays invested, the longer it has to grow. Taking cash early, especially money you don’t yet need, removes that chance and can leave you with less later on,” Currie explains. A 55-year-old with a pension pot worth £100,000 who takes their 25 per cent tax free lump sum immediately and leaves the rest invested would reach retirement age at 67 with £140,000 – enough for a £20,000 a year income to last until they are 81, according to PensionBee’s calculator. However, if they left the entire pension untouched until age 67, they would retire with an extra £42,000, with an income that would last six years longer.