Some things about saving and investing will always hold water. It’s important to have an emergency fund in case things go wrong. You should “pay” yourself first by saving, and only spend on the things you want afterwards. Targeting slow, steady returns over the long term is often a good way to accumulate wealth.

But one thing that isn’t so often discussed is how your age and circumstances should determine your saving and investing strategies.

As you get older, your financial needs will likely change as your life changes. That’s why you should consider different ways to save and invest, depending on your age.

Starting out

When you’re younger, your needs tend to be more basic.

In your twenties and early thirties, typical saving goals might be a car or a first house. You may have started a family and want to save to provide for them.

At this stage, creating an emergency fund is a good start. Having a few months’ salary saved in an easy-access account means you can be confident that you and your family will have access to money, no matter what happens.

You might want to consider long-term saving options, such as high-interest accounts or Cash ISAs. These accounts provide a home for your cash that could see it grow in the background, saved for later.

As well as savings, you could think about investing. An early start to investing can be useful as it provides a longer time frame for your investments to grow. This means you have more time to ride out market dips, especially if you’re willing to wait to reap the rewards.

Keeping your investments aside until retirement also allows you to make the most of the returns you can generate, giving you the best part of 40 years for your investments to gain value.

Of course, as you’re at a stage where you need to accumulate wealth, be careful not to invest more than you can afford.

Finally, you could make extra pension contributions on top of any made directly via PAYE. With the tax relief on offer on top of any investment returns, it can be a prudent choice to start building your retirement pot as soon as possible.

Mid-life needs can easily change

Typically, by the time you’re in your forties, your wealth will have built up over the years. This means you should have more disposable income to increase your investment or pension contributions.

However, life may also have become more expensive. Have you started a family? Taken out a mortgage? Factor these big financial life events into your decisions, and then add money to your pension and investments if you can afford to.

At this stage, it’s a good idea to review your overall current situation. Have the choices you made when you were young turned out as you’d hoped? Are you seeing the right sort of return on your investments? Check your current strategy’s performance and adjust it accordingly.

A financial planner can be indispensable here, as they can give your finances a full audit and advise you on where your money could be working even harder.

Approaching retirement

By the time you’re starting to think about retirement, you should hopefully be seeing returns on your investments. If you’re considering selling shares or assets for retirement income, beware of Capital Gains Tax (CGT), as this could impact the kind of lifestyle you can afford.

You’re likely looking at withdrawing your pension soon, too. Check that your current contributions are still appropriate, and that the value of your fund isn’t above the Lifetime Allowance (LTA), which is £1,073,100 in the 2021/22 tax year. It’s important to keep an eye on this, as otherwise you could pay additional tax charges when you come to draw the funds in retirement.

As you’re nearing the end of your working life, you’re likely at your greatest earning potential. Therefore, it’s potentially the best (and last) chance you’ll have to increase your investments to give your wealth one last boost.

You also have less time to make the most of compounding interest and long-term investment growth, so picking riskier choices might be the best way to give your pot one last push.

Of course, be wary that any poorly performing investments at this stage could have a marked impact on your lifestyle in retirement. Seek financial advice before you make any potentially life-altering choices.

Life after work

Once you’ve done all the hard work throughout your life, you need to carefully manage your finances to make sure they support you as you planned.

Your income is likely to fall in retirement, so consider reviewing investments and perhaps reducing your risk profile; it’s harder to afford poorly performing investments when you’re no longer working.

If you were careful with the pension LTA, you should be able to draw income that makes the most of tax relief. However, be careful not to take too much at one time, as this could incur an Income Tax bill.

Finally, make sure you consider estate planning to mitigate a potential Inheritance Tax (IHT) liability, ensuring the remainder of your money goes to those you love when you’re no longer around.

You do have a nil-rate band (NRB) of £325,000 (or £500,000 if your children or grandchildren inherit your home) where you won’t incur any IHT. But any value over this threshold could be subject to a 40% tax bill.

Consider strategies such as gifting and trust planning to make sure as much of your wealth as possible goes to those who you’d most like to have it.

Need help managing your money?

If you’d like to know how best to manage your money at your current stage of life, please get in touch with us at Digney Grant.

We can help you with a personalised plan that makes the most of your money for you and your family, no matter your circumstances.

Please call +44 (0)28 3082 8880 to find out more.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.