Don't leave your finances to Mickey Mouse
“TIMES and conditions change so rapidly that we must keep our aim constantly focused on the future . . . ”
The words, by the great genius of animation Walt Disney, are more relevant than ever. The world is in a state of change, but in recent decades that change has been coming at a rapid rate.
If you are in your 30s or 40s today, you are one of the ‘Millennial' generation, and the world you live in looks very different to your parents, those members of the ‘Baby Boomers' post-war generation, and would be unrecognisable to your grandparents, members of the ‘Silent Generation' before that.
The unavoidable fact is that there are important challenges that you have to face, which they did not.
For instance, your parents and grandparents most likely had only one or two employers during their lifetimes, while you are much more ‘upwardly mobile' in job terms, and are likely to have five or six. Consequently, the age of auto-enrolment into a workplace pension is a wonderful thing, but it does leave you to keep track of various smaller company pensions, a problem your parents did not have.
Ah, life was oh so simple then.
Your parents were able to buy their first home much earlier, and pay their mortgage down so that they were financially quite comfortable by their mid-50s. Many benefited from a final salary pension scheme, giving them a generous guaranteed income in retirement.
For all holders of personal or workplace pensions, it used to be compulsory to turn your pension into an annuity, again giving a regular, reliable guaranteed income when you finished work. That changed in 2015, it is no longer the case.
Living patterns have also changed. Today, you may well spend your 20s as a renter, as mortgages tend to come later in life, and then you may take a mortgage that you must repay over 40 years.
Compare that to previous times: back in the 1930s, a mortgage typically equalled twice your annual salary, your repayment was 8 per cent of your monthly salary, and you had it paid off in 15 years; today of course, you can pay over a third of your income each month, and usually you need two earners paying together.
Later on, in your 50s, you are more likely than your parents to have children in education who then look to Bomad (The Bank of Mum and Dad) for financial help with owning the roof over their heads.
In fact, Savills the estate agents tell us that two-fifths of mortgaged first time buyers had help from Bomad in 2019, and the London School of Economics (LSE) says that in that year, mums and dads made up the sixth-biggest mortgage lender in the country, handing out a massive £6bn in loans or gifts.
These additional financial challenges which our parents did not face have led many experts to say that ‘the golden age of retirement is behind us'.
On the positive side, buying your first property got a lot easier this year, with the government guaranteeing banks to offer loans of up to 95 per cent of the value of your desired property. Repayments on a 95 per cent mortgage will be hefty, though.
Demographic changes and increased longevity are also changing the way we need to think about our money.
To put it simply: we are healthier, and so retirements are getting longer.
In 2018, people over 65 accounted for 18 per cent of the UK population, but that is predicted to rise to a quarter by 2035. Over the next 22 years, the number of people reaching 85 is expected to double to 3.2m.
In the last 10 years the number of 100 year olds has risen 62 per cent – compare that with the years of WW1 (1914-1918), when there were only 100 people who had reached 100 in the whole country!
As we grow older and more of us see our 100th, one frightening aspect is that among our children, a third of girls and a quarter of boys born in 2015 will develop dementia someday - while the current average cost of a care home is around £35,000 a year.
Are you beginning to realise that the world is not what it used to be?
Today, more than ever before, we need to be looking after our financial future, because it will be here a lot faster than we think.
So don't leave your finances to Mickey Mouse. Listen to Walt Disney – focus on your financial future by taking professional financial advice today.
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com