When it comes to preparing for retirement, your 40s can arguably be the most crucial decade for building the retirement you are seeking. In these years, you are likely to be in the busiest time with work and closest to your peak career earnings, possibly building a family, and you may have significant liabilities such as a mortgage. With all of this in mind, it is easy to let your financial planning slip to the bottom of the pile.

Example scenario

Let’s think about an example family – Mark and Debbie are both aged 45 and have two children, Laura (aged 8) and Michael (aged 6). Mark works as a sales consultant earning a total remuneration of £85,000 per annum including bonus/commission whilst Linda is working part time as an administrative assistant earning £10,000 per annum. We will use this family throughout the below planning areas to show how their circumstances can be affected.

Protection – family income benefit and emergency fund

At this stage of life, it is likely that most people will have taken on significant liabilities such as mortgages, car finance or have some outstanding credit card debt. Although a difficult consideration, one of the key risks of this age is unemployment or early death and being unable to repay those outstanding debt repayments.

This is particularly true for Mark, considering he is the primary income source of the family, who are reliant on his earnings, not only to repay things like their mortgage but basic monthly expenditure such as food, travel and school costs. It is therefore clear the importance of building a contingency plan for if Mark were to lose his job, become terminally ill or pass away to cover these costs. One option to consider would be a family income benefit plan if Mark were to pass away or become critically ill. An indicative quote for Mark and Debbie to cover £3,000 per month tax-free income until their youngest son, Michael, reaches age 18 would cost £111.08 per month, subject to medical underwriting – a relatively small cost considering the peace of mind received from having such protection.

Source: [1]

*Indexation provides an increase in cover over time by increasing it with Retail Price Index (A measure of inflation) to ensure the real value of cover remains constant.

**Premiums are guaranteed meaning they will remain fixed for the life of the policy.

It is always worth understanding what employer provisions are available as part of your employment contract. As a minimum, most employers will provide some sort of life cover in the form of a death in service plan, however many employers seek to offer a competitive package and may offer further provisions such as private medical insurance, critical illness and more.

Aside from this, building an emergency fund of 3-6 months’ worth of family expenses is the first step in protecting you and your family for when things don’t go according to plan, for example, unexpected costs or temporary loss of income.