January 26, 2024
We recently took a look at attitudes to retirement in the UK. One of the key findings was that people who get involved in financial planning are three times more likely to feel positive about their finances than non-planners. The same report indicated that, on average, people start to take a keener interest in retirement planning from age 36. However, more than half of the retired people surveyed say that they wish they’d started planning for retirement earlier.
Your retirement finances, though important, aren’t the only reason for financial planning. There are good reasons for building healthy financial habits at every stage of life, and planning is a good first step towards that.
Whatever your age right now, an IFA can help you to develop a financial plan – whether that’s looking towards increasing financial security for a growing family, planning for a comfortable retirement or thinking about how to transfer your wealth to the next generation.
Your 20s are usually the decade when you move fully into adulthood, when you start to develop your independence, perhaps transitioning from student into working life, and hopefully building your financial independence as well. Along with that often comes the reality of paying utility bills, council tax, rent and perhaps your first mortgage.
It can feel daunting, and in today’s economic world, many young people discover that balancing their salaries with paying for necessities can be challenging. So saving for the future frequently gets put on the back burner.
The first step to taking and maintaining control is to set or review your household budget. This can help you to see where you are spending money and whether you can find ways to cut costs. Reviewing it regularly is also important, allowing you to see whether some costs have increased.
If you find yourself able to save some money, set yourself savings goals. Aim to set aside a bit each month to build up a ‘rainy day’ fund at first, however small. The important thing is to treat your monthly savings as a bill, establishing the mindset that it’s a regular payment, rather than something you do if you happen to have anything left over.
Even if you only have a small amount of money to set aside right now, considering your future goals and looking at your options will help you later on.
If you have a workplace pension plan, it’s a good idea to sign up to it now, so you get used to setting aside part of your salary. And your employer will often contribute as well. Pension plans offer tax relief on your payments, so putting money in costs you less.
Your 30s are often the decade when you start to move into family commitments of your own, and your aspirations start to grow. You may be more established in your career, developing increased earning power. You might be looking at starting a family, or adding to it, and moving to a larger home.
Along with increased financial security, may come the need to consider financial protection – for example life insurance, or income protection. If you have a mortgage, you definitely need to make sure that you have insurance to cover your payments should something unexpected happen.
You might also be taking the idea of saving and investing for the future more seriously. Now is a good time to start building a relationship with an independent financial adviser, if you haven’t already.
An IFA will help you to set and evaluate your goals and aspirations in life. The right IFA will spend time getting to know you, to understand what’s important to you, and guide you through the decisions that will help you achieve financial security. Reviewing your pension arrangements now will help you to maximise the benefits of long-term compound growth. And if you haven’t already started saving into ISAs, now is a good time to consider this and ensure you benefit from tax-free allowances for as long as possible.
What do you want the next decades to look like? Do you have children and want to ensure you have the finances to support them through higher education, or to help them buy their first home, for example? At what age do you want to retire, and what are your aspirations for retirement? Your IFA will help you to understand ways in which you can achieve that.
As we move into our 40s, we often start thinking more about what life will look like in the future. It’s possible that, by now, you have children approaching adulthood themselves. If they have already entered the workforce, you might still want to help them financially – with establishing a home, or by helping to pay for their wedding. It’s also possible that you might have divorced, started a second family or found yourself navigating the challenges of a blended family, or perhaps you might be looking at a long-term relationship for the first time.
Whatever your personal situation, it’s important to keep reviewing your financial plan, and adjusting it to meet your current needs. If there have been major life changes, you might have to dip into your savings to help cover your costs. That’s fine, plans change, but you’re more likely to get back on track if you already have a clear idea of where you want to be in the future.
Talking to an IFA about how your circumstances are changing is a good way to recalibrate, and to ensure your plan stays on track.
In your late 40s, retirement can still feel a long way off, but as we enter our 50s, it often starts to feel a little closer! You may have a little more financial freedom now, and it’s time to focus on maximising your retirement funds.
This is also the time when many people start to think about estate planning, and managing inheritance. You might have elderly parents who need increasing care, or who have left you a legacy, and you want guidance in how best to use and preserve it for the future.
This is a time when good tax advice becomes particularly important, and your IFA can help you to ensure that you set up and manage your finances to be most beneficial to you. It’s also a good time to start thinking about making your will, if you haven’t already done so; to make sure that your accumulating wealth goes where you want it to if the unexpected happens.
If you own your own business, you could start to look at your exit plan, and your IFA can suggest the most tax-efficient ways of benefiting from the value that your hard work has built up over the years.
Once you decide to retire, you could be forgiven for thinking that your financial planning work is done! But it’s just as important to keep reviewing your plans now. Whatever retirement goals you’ve saved for, you’ll need to be confident that your retirement funds are sufficient to see you through. That may depend on decisions you make about drawing down a lump sum vs taking a regular income (or a combination), and there are tax implications which vary depending on your income and circumstances. You might also want to keep saving and investing, if you have the surplus income to do so.
It’s a good idea to talk to your IFA before making any big decisions, and they can ensure you understand all the options and implications.
Estate planning is also important at this stage in your life, to ensure that as much of your wealth as possible can be passed on to whoever you choose, by minimising your Inheritance Tax liabilities. This isn’t necessarily all about what happens after you die, either. There are tax-efficient ways to pass on your wealth during your lifetime, and your IFA will help you to understand your options.
You might also want to consider how you will pay for later-life care. State-funded care offers limited options in many cases, and care options are, broadly-speaking, means-tested. The means-testing thresholds remain very low, and many people are surprised at how much care costs, particularly if you need residential care.
Once you have retired, particularly if you are aware of any specific health issues which might affect you more seriously later on, you should look carefully at your options for funding later-life care, to ensure that it is there if you need it.
You might also consider putting in place a Power of Attorney for health and welfare matters, or finance, or both. We all know that cognitive ability declines with age but serious illness can strike at any time and potentially make it impossible for us to give instructions on important matters. Most people choose a trusted family member or friend for a POA, but it’s always best to have something in place before it is needed.
The need for financial certainty is a common thread across all age groups, but what that actually means naturally varies depending on someone’s stage of life. When it comes to retirement, many people want a combination of certainty and financial freedom.
Achieving this combination of financial security and flexibility is certainly possible, and your options increase the younger you start to save towards it.
We’d like to help you develop healthy financial habits in 2024. At Talis IFA, our ‘life first, money second’ approach helps our clients feel confident that we understand them and their life goals, as we guide them towards achieving their desired outcome.
If you’d like the help of an IFA to get a clearer picture of your financial situation and develop a plan for your retirement, find a Talis IFA here.
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