LIFE STAGES: FINANCIAL PLANNING DECADE BY DECADE
BY LONDON & CAPITAL
It seems all the talk about financial planning these days focuses on retirement. Open the money pages of any newspaper or magazine, and there it is in black and white: pensions this, retirement that, how to build a SIPP, how to plan for life after work.
True, the importance of retirement planning can’t be ignored, but given your retirement can be decades away, what about the here and now?
Well that’s what the four financial life stages come in. Life-defining moments, such as buying a first home, getting married and starting a family, are all part of your financial planning journey – and they deserve just as much attention as your pension.
Stage 1: The young and the reckless
You may be fresh out of university and starting your first job and beginning to accumulate wealth, or maybe you’ve received an inheritance that you need to manage. Or perhaps you’re a few years into your career and, after having an epiphany, you’ve decided to put the real world on hold so you can go travelling.
Youth is a time to take a few risks and be carefree. So, it’s no surprise that you might feel the same way about your investments. But it’s during this time when many people make their biggest financial blunders. With the guidance of a good financial adviser, you can make the most of your risk appetite while avoiding some of the mistakes that beset many novice investors. This is also a time to put in place pensions, individual savings accounts (ISAs) and other savings vehicles.
Stage 2: Married, with children
That recklessness of youth will eventually come to a halt – for many this coincides with the arrival of their first-born and the sudden realisation they have another mouth to feed. Just as you need to keep up with the changing pace of life, so too must your financial plan. This is the phase of your life when it all gets very expensive, very quickly: getting married, buying a house or two, cars sitting on the driveway, some children, school fees, a dog, and a weekly grocery bill that resembles a mortgage payment.
No surprises, when you’re in this stage of life, there are financial planning considerations that need attention. Applying for mortgages, setting up insurance policies, arranging protection plans and setting up education savings funds to name a few. Having dependents means making provisions for their future – such as opening
Junior ISAs – and this is also the time to ensure you have a will in place should the worst happen.
Stage 3: Don’t stop me now
So. The kids are at university. You’re comfortable in your career. You’re financially stable. This is when you will probably switch your focus from growing your wealth, to preserving it for the future. Remember that pension savings you set up all those years ago not long after you returned from a year of surfing on the Gold Coast? It could be time to start discussing a change of risk profile with your wealth manager – perhaps even including your adult children.
The main challenge at this point is to ensure your wealth sustains lifestyle throughout your retirement – come what may. This means gradually moving your investments into lower-risk assets so they are somewhat sheltered in the event of an unwanted downturn in markets. While this move is a final goodbye to your risky youth, you’ll thank yourself 20, 30 or even 40 years in the future. Meanwhile, your wealth manager may advise you to make the most of pensions and ISA allowances, as well as to consider setting up trusts in order to help
protect family assets.
Stage 4: Empty nest
If all goes to plan, your children have flown the nest, you are about to retire, and you suddenly have the time and the freedom for your own pursuits. That once in a lifetime trip to Patagonia? Anything is possible. The period leading up to retirement is when you should meet with your wealth manager to discuss when and how you should draw pensions, whether you should consider philanthropic donations, and what amounts, if any, you should set aside to give to children and grandchildren during your lifetime. If you intend to provide a living inheritance, it will require some planning to avoid inheritance tax pitfalls and take advantage of the available allowances.
The four financial life stages are, in a way, like the Game of Life, with plenty of ups, downs and hazards along the way. The best way to navigate them successfully is through careful planning every step of the way.
To get in contact with London & Capital, please give us a call on +44 (0) 207 396 3388 or get in contact here.