My Financial Life – Thriving in your 40s

As part of AJ Bell’s Money Matters campaign, which is focussed on helping all women feel empowered to live their best financial lives, we’re putting together a series of articles breaking down some of the particular considerations depending on your age.

This article is all about your 40s, a decade when people are often considered as entering their peak earning period, but also a decade which for many women is filled with compromise, change and no small number of financial potholes to navigate.

The first thing to say is that no two financial lives are the same, but women’s financial lives do tend to be different to men’s. This is primarily because they’re still the main caregiver, and the party most likely to take time out of the workplace or to cut back on hours in order to look after children.

Whilst the percentage of women who don’t have children has remained pretty consistent since the 1970s (14-16%), the age at which women have their first child has been steadily increasing with the latest data from the ONS, finding the most common age is now 31.

So, there will be plenty of women, at least in the early part of their 40s, with children in primary school, which means the care conundrum is likely to stay front and centre for at least some of this decade.

Whilst in men's careers, earning potential and investment journeys tends to follow a pretty straight line, women have to think slightly differently. For some, the trajectory will be pretty linear. For others, that graph might look more like an Alton Towers roller coaster. Whatever your path, just remember that doing something is better than doing nothing.

For women working part-time, they might not qualify for auto-enrolment in a workplace pension, and many may find their 40s chock full of other financial pressures, from the aforementioned childcare to school fees and potentially higher mortgage payments.

But your older self will thank you if you can find even a small amount of cash to invest in a pension now, so you aren’t solely relying on the state pension when you retire.

One of the biggest mistakes women of every age make is to think that there’s no point investing unless you’ve got a decent chunk of cash to play with. And make sure you have a conversation with your partner about more than which streaming subscriptions should be renewed and who is responsible for putting the wash on this weekend.

A very rough rule of thumb is to take the age at which you started to save into a pension and halve it; that should be the percentage of your salary you contribute each year, so if you have never saved into a pension and you’ve just turned 40 - that’s 20%.

Right, firstly, don’t panic if you’re just starting out because many people - both men and women - are in the same boat because they prioritised other things like getting on the housing ladder. But secondly, even £25 a month can blossom into a beautiful nest egg if it’s given almost 30 years to mature.

Pensions should be front and centre in your investing decisions by this point in your life, even if retirement still seems like a heck of a long time away. With just over half of women surveyed as part of our Financial Wobbly Bits researching telling us they didn’t feel they had enough in their pension pot to see them comfortably through their retirement, it’s clear there is a lot of work still to be done, and your 40s is a great time to take stock.

However, pensions shouldn’t be the only consideration.

If you’re one of the millions of people who have found their mortgage payments increase substantially over the past couple of years, you might also have made some difficult decisions which you need to keep revisiting.

Over the past couple of years, interest rates have taken an unexpected and uncomfortable jump up which pushed many homeowners to consider extending their mortgage term in order to bring down their monthly repayments to a more manageable level. In the short term, that could be the best solution, but it will come with a price in the form of higher interest payments and the potential that you could still be paying off your mortgage well into retirement.

That’s not necessarily a bad thing as long as it’s something you plan for, and bear in mind, if you ever look at those calculations about minimum living standards for retirement, they crucially don’t consider any rent or mortgage costs in their numbers.

And we also know that women like cash. In fact, they hold significantly more cash ISAs than men, though on average they have slightly less in those accounts and they hold a greater percentage of cash in their investment portfolios overall. Cash can be a really important piece in your financial jigsaw, but it shouldn’t be the whole picture, especially when it comes to saving for life moments.

Help towards a house deposit for your kids, paying for a future wedding, even helping with university fees are likely to be shorter-term goals than funding your retirement, but if the time horizon is longer than five years, you should consider whether your money would work harder for you if you invested it.

There are lots of smart options to consider from a Stocks and shares ISA to a Junior ISA to help your kids start on their own investing journeys.

If you do keep a significant portion of your savings in cash, make sure you keep checking the interest rate you are getting on that cash and keep a careful eye on your personal savings allowance; no one wants an unexpected bill from the tax man!

The key at any age is to make a plan, and whilst a busy 40-year-old probably is incredibly time poor, setting aside a few hours over a couple of weekends can make a huge difference. Financial wellbeing is a way to give yourself and your family more choices and a quick health check even once a year can keep you keep fit for the future.

My Financial Life - 40s checklist

1. Keep track of your mortgage – if you extend the term, will it be paid off before you plan to retire?
2. If you’ve not started a pension, it’s not too late and even a small amount every month can make a big difference.
3. Think about how much cash you have – could your longer-term goals be better served by investing rather than saving?
4. Make a will – it’s too easy to keep putting it off.
5. Check in at least once a year on your finances to keep them fit for the future.