After the party - do some thinking

Your mortgage

If for much of your adult life you have been paying a monthly mortgage, your fifties are when this long process is likely to end. It's a good feeling to own your house outright, but there are some issues to face before you make that last mortgage payment.

First, it may actually not be such a good idea to wipe out your mortgage debt. Bradford and Bingley borrowers should ensure they remain customers until after flotation. (£100 minimum is necessary for voting rights, though smaller loans still qualify for payouts.) Borrowers with other mutual building societies may also want to keep a small mortgage loan outstanding, just in case of future windfalls.

Controversially, when they close a mortgage account, many mortgage lenders levy a 'sealing fee' for the work involved in removing the legal charge. This may seem the ultimate example of greed and bad faith, but if you want to clear the debt you have little option but to pay up.

The alternative is to continue with a small residual loan. The Halifax, for example, offers to freeze the last £125 on a mortgage account on an interest-free basis. This allows you to avoid the responsibility of looking after your own title deeds, since the documents will remain safely stored by the lender. Another possible advantage is that you can subsequently take out a further secured loan against the property at relatively little expense.

However, with the abolition of mortgage interest tax relief this April, there is now no tax advantage for maintaining a mortgage loan unnecessarily.

Trading down

If your children have left home, you may consider moving to a smaller house.

This makes good financial sense if your income is about to be reduced, perhaps through early retirement or redundancy. Household bills are likely to be smaller but, more importantly, you will release some of the capital tied up in your home, which can be reinvested to bring in interest.

If retirement is still some way off, a house is a convenient store for excess capital. Unlike other investments, it is free of any potential capital gains tax liability.

Lump sum investments

This is the stage in life when you can find yourself with a substantial lump sum available to invest. Whether the money is the product of a 25-year savings slog with an endowment policy, a move to a smaller house or the result of an inheritance, the issue is what to do next.

If you want professional financial advice, go to an independent financial adviser rather than a tied representative. You may also want to consider paying for the advice via a fee rather than indirectly through product commission.

The rule is to build a balanced portfolio, spreading your risks. It may be better not to invest a lump sum all at once, but to spread the investment over a period of time - otherwise you risk entering the equity market at a time when the market is peaking and about to fall.

There are other ways to invest a lump sum. One possibility is to buy a second home (perhaps with retirement ultimately in mind). If you are tempted to buy abroad, remember that house prices do not necessarily appreciate in value in the same way as in Britain, and that quaint old farm buildings can be difficult to resell. Unless you plan to retire abroad, you are also taking on an exchange rate risk. In France, make sure you understand the inheritance laws on property.

Second careers and downshifting

The fifties can be years when you feel you are marking time at work, having climbed as far as you will go in your present career. It is certainly not too late to consider something new. However, self-employment or setting up a business do need to be approached with caution.

Take particular care if you are tempted to buy an existing business. Running a village pub or buying a small bookshop may have strong appeal, but will not generate much profit, and you should not assume that a business which is unprofitable has just been poorly managed and can be turned around.

If you establish a business, you have the choice of running it on a self-employed basis or incorporating it as a limited company and paying yourself through a salary and/or dividend payments. There are advantages and pitfalls to both routes, and it is appropriate to take advice. You will be liable to register for VAT if your turnover is £52,000 or above.

Retirement income

With retirement now in the foreseeable future, this may be the last chance to build up adequate arrangements to tide you through the years when you will be surviving on your pension and investment income.

One possibility is to shovel as much spare cash as possible into a pension. For people in occupational pension schemes, additional voluntary contributions (AVCs) made through the company scheme are normally better value than free-standing AVCs, where charges are often substantial.

If you have income from self-employment or from non-pensionable employment, you can contribute up to 30 per cent of these earnings each year to a personal pension between the ages of 51 and 55, or 35 per cent between 55 and 60 (though for high earners, these percentages are capped at an income of £91,800).

Most people are best off maximising pension contributions by back-dating payments, using the complex carry-forward and carry-back rules. With the introduction of stakeholder pensions next year, the rules on earnings will be relaxed.

Building up capital for your retirement is not necessarily restricted to pensions, however. While pension contributions attract tax relief, the capital (whether in a personal pension or AVC) is locked away until you come to retire, and your eventual pension will be subject to income tax.

Isas are more flexible, and should also be considered. Isa contributions (a maximum of £7000 during 2000-1), while made from after-tax income, are afterwards held in a tax-free environment. Isas can also be cashed in at any time (though it is unwise to hold equity-based Isas unless you expect to hold them for a period of several years).

To receive a forecast of your likely state pension, complete form BR19, available from tax and Benefits Agency offices.

Early retirement

If you are taking early retirement, the implications for the pension you will draw for the rest of your life can be significant.

Occupational pensions may be reduced in three different ways: firstly, you will have fewer qualifying years in the scheme. Secondly, in final salary schemes, you are likely to be leaving work on a lower salary than you would otherwise have achieved. Finally, your pension scheme is likely to impose an actuarial reduction on your pension, to acknowledge the fact that you have contributed towards it for a shorter-than-anticipated period, but will be drawing it for longer.

If you take retirement on the grounds of ill health, most of these penalties will not apply. If early retirement is offered as part of a redundancy programme, much will depend on the exact pension terms you manage to negotiate.

For people with personal pensions, Inland Revenue rules normally permit you to purchase your pension annuity and take your cash lump sum from age 50.

The Government recently announced plans to raise the age for drawing on personal and occupational pensions from 50 to 55. This won't affect today's fiftysomethings as the change, if implemented, will be phased in between 2010 and 2020. For fiftysomethings of the future, however, early retirement may be just a dream unless they amass a fortune in earlier life.

It may soon be easier to combine part-time work with a pension - an option that may suit many. At present it is not normally possible to draw a pension and continue working part time with the same employer, but the Inland Revenue is expected to alter this rule.

Even for those who can retire at 50 today, there are practical drawbacks. Few people have enough money to retire comfortably at that age. You will have paid less in contributions and your pension capital will have had less time to grow. You will be drawing a pension for longer, so the annuity you buy will be reduced accordingly. Pension companies may impose penalties if you do not continue a policy until the time you originally intended.

Inheritance planning

This is the time of life when you may be coming to terms with the idea of being a grandparent. Gifts to grandchildren do not have the same tax restrictions which apply when parents make gifts to their own children (where interest over £100 is treated for tax purposes as still being the parents' own income). Gifts which you make out of your normal income - rather than from capital - are outside the inheritance tax (IHT) net, and there is an annual IHT exemption for the first £3,000 worth of gifts. Other gifts could potentially be liable for IHT, but only if you were to die within seven years. (The threshold for IHT on estates is £234,000.)

If you are wealthy enough for inheritance tax to be an issue (only about 4 per cent of estates do incur an IHT liability), there can be advantages in arranging to skip a generation by passing assets directly to your grandchildren. There are a number of ways to achieve through family trusts and if you are in this fortunate position you will probably already have taken professional advice.

Your will

Finally, you should ensure that your will is up to date. Many people first make a will when they start a family; as children grow older, the arrangements may need to be changed.