- Financial planning
- 7 minute read
By Jo Clarke
If you don’t know where to start the financial planning process, a good place to start is with protection. The reason for this is that if you were to lose your job, or become too ill to work, you probably wouldn’t be able to afford your mortgage, save for retirement or make any other investments. Furthermore, your standard of living, and that of your family, could fall dramatically. Quite simply, protection is the cornerstone of financial planning.
Then, of course, it’s never too early to start saving for retirement. In fact, the sooner you start to save, and the more you save, the better. Don’t fall into the trap of assuming that your defined contribution scheme with your employer will set you up for a comfortable retirement. Many employers only make minimal contributions into their employees’ pension schemes, so if you want a nice life during your golden years, you may need to take control of your own pension pot. It might be that you can increase your contributions and your employer will match them. Even if your employer won’t match them, it might still be advisable for you to make additional contributions yourself if you are to enjoy a comfortable retirement.
Something else to consider is the nature of the funds that your pension pot is invested in. Do you know if they are performing well? Are they invested in companies that fit with your ethical values? Do they suit your risk appetite, career goals and lifestyle objectives? There is also the matter of how much is invested in your pension pot overall. If you don’t actually know, you’re not alone. According to 2017 research by pension company Aegon, 35% of women have no idea how much they have saved for retirement.
You can take advice on many different aspects of financial planning, from critical illness cover and income protection, through to ISAs, pensions, saving for children and grandchildren, planning for inheritance tax and drawing up a will. Seeking out a qualified professional to advise you will not only save you time, and make the process less intimidating, it could also save you hundreds of thousands of pounds over the course of your lifetime.
According to The value of financial advice, a research report published by ILC-UK in July 2017, financial advice gives very real value to consumers – both the wealthy and the less wealthy – since those who take advice are significantly more likely to save larger sums and invest in the equity market. Affluent consumers who took financial advice earned £880 (or 16%) more per year on average than the equivalent non-advised group, while their less affluent peers still earned £713 (or 19%) more per year than the equivalent non-advised group.
Unfortunately, there is a misconception that financial planning is only relevant to people who have millions of pounds to invest. In fact, it is sensible for any woman who has an investment pot worth £50,000 upwards to seek professional advice. Furthermore, research has shown women are more interested in sustainable investing than men, and in turn could be likely to examine in more detail the types of investments that could own. Today, lots of socially responsible investment opportunities exist, however, so that should not put women off investing.
An adviser will be able to talk to you about your career goals, family situation, lifestyle and retirement objectives, and make recommendations for key financial products that will help you to achieve your objectives. Not only will working with an adviser probably take up less time than you might think, it will also free up your mind to focus on other things because you know that you have a sensible financial plan in place.
I can’t state enough that financial planning is a life-changing event, or rather, series of events. That’s why it is important to seek advice sooner rather than later. Ultimately, the earlier you start to plan, the better off you will be in the years to come. So if you haven’t already got your affairs in order, I hope you will think about making a call to a financial adviser today.
Top tips for planning for the long termHowever old you are, there is always some action you can take to prepare for a secure and comfortable future.
In your 20s…Start saving towards a deposit on a house and, once you’ve bought a house, take out protection against critical illness so that you are covered if you fall sick, and protection against loss of income so that you are covered if you lose your job.
It is also important to start thinking about retirement in your 20s, and to save as much as you can into your pension pot, since the money you save now will generate good returns over time.
In your 30s…This is the time of life when many women start to feel the pressure of juggling work with running a household. You may have children in this decade – in which case you might want to increase your critical illness and income protection cover, take out life insurance and make a will. Another consideration is whether you want to open junior ISA accounts for your offspring.
You will want to keep saving for retirement during your 30s. In addition, you should be aware of the fact that if you take time off work to have children, you will be saving less money into your pension pot during these years. This could affect the age at which you can retire, and how much you have to retire on, in later years. During this decade you may also want to start thinking about saving for your children’s education, whether that’s private school fees or university tuition and living expenses.
In your 40s…Although this tends to be another busy decade for women, who are often climbing the career ladder while simultaneously holding significant caregiving responsibilities, it is no time to take your foot off the investment pedal. Keep reviewing your retirement planning on an annual basis, as your disposable income increases, and explore other options for shielding your hard-earned cash from the taxman. It might not even be too early to start saving for your childrens’ weddings…
In your 50s…As your retirement date draws near, you will probably want to look at switching your pension funds into lower-risk investments so that you’re less affected by unexpected market shocks. You will have some important decisions to take about your pension in this decade so make sure that you investigate the pension freedom rules and explore the different ways of drawing down on your pension pot.
In your 60s and beyond…Even if you have retired – and even if you haven’t – you should still be making financial plans. Financial planning is a continuous process and the good news is that you may have more time to put into it now than you did earlier in your life. Without wishing to sound morbid, this is the natural stage to start thinking about how you would pay for nursing care, should be that be necessary in future, and how you can reduce the inheritance tax burden on your estate for the benefit of your heirs.
Please be aware that the value of investments can fall, as well as rise, and you may get back less than you originally invested. An individual’s tax treatment depends on their circumstances and is subject to change.
To find out more about how financial planning can help you to save for a more prosperous future, get in touch.