WHAT stage of your financial life cycle are you at?
I saw a cartoon lately where a chimp, a raven, a penguin, a dog and an elephant are standing in a wood, in front of a school examiner, who was saying: “In order to make this a fair selection process, you will all face the same test. Climb that tree.”
It’s a similar situation in managing our money. We are all very different, and our needs and priorities change as we move through our life.
Here’s a taste of what you might want to be thinking about as your saving power (and your tree-climbing skills) increase.
In our early earning years, up until we are 45 or so, we will be approaching our peak earning power, but we may also have a mortgage and a young family to consider. We may think of insuring our life, and insuring ourselves against serious illness that would stop us from working. We may also need to look at the tax we are paying, but perhaps most important of all is getting to work on our long-term plan.
Retirement is a complex area of planning, rules around pensions never sit still for long, but there is only one certainty – one day, you will have that tree to climb, and while it may seem far away now, your ability to plan for it has never been greater. How much will you need? How much should you be saving now, to get there? As Lennon and McCartney said in their famous song about financial advisers: ‘We can work it out.’
When you get into your 50s, it’s becoming essential to do some serious forward thinking about retirement, and we can give you a detailed picture of what your retirement is going to look like. You may also be looking forward to helping your children get on to the property ladder.
Research by the London School of Economics tells us that the ‘Bank of Mum and Dad’ is the sixth-largest mortgage lender in the UK. Two in five first time buyers had help from mum and dad last year. Again, planning is crucial to avoid overstretching yourself, and having too little to live on in retirement.
Once you are in your 60s, you will need to get into the detail of your retirement plan. How much will you need each month? Do you want to use your money to buy an annuity, giving you a guaranteed income for life, or is drawdown more your style, where you take out or ‘draw down’ lump sums from your pension?
Our 60s are also the time to start planning for passing on our wealth to our children. This is another complex field, and passing them their inheritance needs work, to do it in a tax-efficient manner.
Then, as we move into our 70s, we have to face the less pleasant realities that we may need later life care, which can be pricey.
We might also want to consider nominating trusted friends to make decisions in accordance with our wishes, if we become incapacitated for any reason. This is where a ‘Power of Attorney’ comes in.
You can sign a Power of Attorney to appoint one or more trusted adults to make decisions on your behalf in the future. These decisions can be made ‘jointly’ with two attorneys required to act together, or ‘jointly and severally’, so that some decisions are taken by both, other decisions (e.g. about where you should live) are given to one nominated attorney only.
Plenty of food for thought in this! We all move through the animal menagerie, as we move through life.
Which animal are you today? The sprightly chimpanzee, young and eager to put his (financial) life in order, or the sedate and less agile elephant, who has his tree-climbing days largely behind him?
We can help you at all stages of your financial ‘evolution’.
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
