If you’re in your 40s, the chances are it doesn’t get better than this. That’s when it comes to your income, at least.
‘Peak earning’ is the age when you earn the highest wage relative to the hours you work. And it might come earlier than you think. The average age for women to hit this ‘sweet spot’ is 40, while men are slightly later at 44.
Between ages 40 to 49, women earn an average of £35,250, while for men it’s £42,260, according to the latest figures from the Office for National Statistics.
So, while your earnings are at their highest, and outgoings are potentially at their lowest, now is the time to iron out any debt and maximise your retirement savings. Here’s how.
1. Get out of debt
You may well have built up debt in your 30s that you are now potentially in a better position to pay off. If you have debt (which is normal: the average UK adult has £4,279 in unsecured debt as of August 2024, according to The Money Charity), choose a strategy for paying it off and see it through.
The snowball method involves focusing on your smallest debt first and funnelling as much cash as you can toward paying it off (while paying the minimum balance on the others). Once it’s paid off, move to the next smallest and so on.
Or, you could take the avalanche method, where you pay the debt with the highest interest rate first. This will minimise how much you spend on interest rates over time.
2. Build some emergency cash savings
If the past few years have taught us anything, it’s that you never know what’s around the corner. If you don’t have one already, start building a cash savings pot that you can fall back on in emergencies. Ideally, you will have three months’ worth of salary in an easy-access savings account – see our top-paying ethical savings accounts here. For money that you won’t need for one to three years, you could look at a (potentially higher paying) fixed-rate account – see our top ethical fixed-rate picks here.
3. Spring clean your pensions
Now is a good time to check that you are on track to retire comfortably. With people living longer than they used to (men on average can expect to live to 79, while for women it’s 83), planning for your retirement years as early as possible is key.
4. Check your National Insurance contributions
A state pension can give you the financial foundation for your retirement. You’ll usually need at least 10 qualifying years on your NI record to get any state pension. They do not have to be 10 qualifying years in a row. To receive the full amount, you will need 35 years’ worth of NI contributions. Check you’re on track by getting an online forecast from the DWP of the amount you could get, and the earliest date you could get it.
5. Consolidate your pension pots
Chances are that you’ve worked in quite a few places by the time you reach your early 40s, which means you’re likely to have a few forgotten pensions dotted around. It’s wise to find out where they are, because they could be sitting in a poorly-performing fund or in a scheme with horribly high fees. If you find having multiple pensions a hassle, consider moving them to one place. Providers such as PensionBee can help you with this.
Some schemes do come with valuable benefits such as guarantees – you will need to check this before moving your pot. Look for a provider that will easily tell you how much money is in your pension, as well as how your funds are performing and how much you’ll receive on retirement. This will make keeping on top of your contributions infinitely easier.
While you’re organising your pension pot, consider making it ethical. According to Make My Money Matter, greening your pension is 21x more effective at reducing your carbon footprint than giving up flying, going veggie and switching energy provider combined.
6. Max out your contributions
What you’re putting into your pension now will shape your later life, so it’s important to find the right level of contributions and keep them up.
Consider the balance of any existing pension(s), your planned retirement age and ideal retirement income to get a ballpark figure to start aiming at.
7. Consider a SIPP
To boost your pension savings, you can make extra contributions to your workplace pension, or alternatively, make contributions to a Self-Invested Personal Pension (SIPP). A SIPP gives you tax-relief on your savings. Basic and higher rate taxpayers receive 20 per cent (an £800 contribution gets topped up to £1,000 by the government), while additional rate taxpayers can claim 25 per cent. For the 2024/2025 tax year, the annual pension contribution limit for tax relief purposes is £60,000, or 100 per cent of your salary, whichever is lower.
While it’s good to have an understanding yourself of how to plan your finances, it’s worth considering using a chartered financial planner such as the sponsors of our new Good Guide to Financial Planning EQ Investors – or our other top ethical picks – to really help you make the most of your money.
This article is taken from the Good Guide to Financial Planning 2025, available to download free here.
