24 November 2020
Everyone needs a financial plan, but the priorities are likely to change depending on your age, responsibilities and dependents. Carla Morris, financial planner at wealth manager Brewin Dolphin, provides her advice on the different saving and investment priorities at five different life stages, helping you to create a flexible, yet dependable, financial plan.
“As the cost of living has risen and household finances have become increasingly squeezed, it can be difficult to set aside savings both for the future and for more shorter-term goals like buying your first property. Having clear goals (which don’t have to be monetary) and a plan will help, but whether you want to grow your wealth, save for retirement or ensure your loved ones are provided for, asking yourself the right questions is the best place to start.”
Questions to ask yourself:
- What are the financial milestones you want to hit?
- What do you want your money to do for you?
- Are your savings growing?
- Are you separating your long- and short-term priorities?
- Is now the time to pay off your debts?
- When do you want to retire?
In your 20s
Carla explains: “As you take your first steps into the world of work in your twenties, you may well be experiencing your first taste of financial independence, with retirement unlikely to be high on your list of priorities. In your twenties, saving is often focused around the dream of getting onto the property ladder. Young people are facing increasingly tough barriers to entry through rigid mortgage requirements and vanishing low-deposit loans. You should aim to put away little and often, taking into consideration Government support products on offer such as the Lifetime ISA (LISA) or Help To Buy. If you have/take out a LISA for example, the Government will give you a 25% bonus on the total amount you pay into your LISA, not including investment interest or investment growth that can be put towards your first property.
“Although both your shorter- and longer-term savings are likely to be focused elsewhere, if you are offered the chance to join your company’s pension scheme you should take it. Your employer will pay in money on your behalf. If you don’t join you may well regret it later in life as that money will be lost. If you would prefer a more accessible savings vehicle than a pension you can also save up to £20,000 annually in a tax-efficient ISA.”
In your 30s
Carla says: “By your thirties, if you haven’t already done so, you want to start thinking about your life goals and taking your retirement saving more seriously. You might also be planning for the cost of raising a child and preparing for the financial responsibility that comes with building a family. According to the CPAG1 , the cost of raising a child, including estimates of housing, childcare and council tax, from birth to 18 is now £150,582 for a couple and £185,036 for a single parent family. It might be a good time to review recurring and non-essential expenses such as subscriptions offering duplicate functions. Making small changes now can make a big difference in the long term to your savings pot. Be mindful and ask your partner or a family member to hold you accountable.
“Putting your money into stocks and shares is a great way to accumulate wealth and watch your savings grow in your thirties. At this stage in your life, you have plenty of time to ride out any volatility ahead of your retirement and can look to contribute to your pension and ‘rainy day’ savings pot through investing appropriately for your risk appetite.
“A mix of investments such as cash, bonds, and equities typically offer the best protection against the downs and ups of the market. By also looking at industrial sectors and geographical regions, you can further diversify your risk and returns.
“Positioning your nest egg to benefit from a range of investment returns can help it withstand shocks. For example, you could add funds that are designed to minimise downside risk such as absolute return funds. Or increase your exposure to corporate bonds and gilts. Many advisers also have ready-made portfolios suitable for a range of risk profiles that can help you get started.
“Your thirties are also a good time to make the most of compound returns. Einstein described compound interest as the “eighth wonder of the world” because of the almost magical way interest paid on interest adds up. Compounding involves investment returns themselves generating future returns and it means that, if you have time on your side, even relatively small amounts you invest can build into much larger sums. The earlier you start to save the more powerful the effect of compounding will be.”
1 https://cpag.org.uk/policy-and-campaigns/report/cost-child-2019
In your 40s
Carla says: “In your forties you may be hitting peak earnings and are probably enjoying a better quality of life than ever before. But there is no room for complacency. Even if you feel your finances are in shape it is a good idea to review them. That way you can make sure that you are clear about how you want to live in the future, whether your investments are on target to meet your goals and that you are using all the allowances available to you.”
In your 50s
Carla explains: “Under current rules you could access your pension at 55 and, in theory, retire. However, anyone under the age of 47 will now have to wait until they are 57 before being able to access their pension.
“It is important in your fifties to give your retirement savings a final boost as you are continuing to earn and could potentially have less outgoings. It is also the time to start focusing on the level of income you will want and need in retirement. Once you have a realistic income target you can establish whether your pension pot will provide the income you need – and if not, take action accordingly to save more or reduce your expectations.
“As there are very serious decisions to be made about your finances in your fifties, making good use of a financial planner during this decade makes sense.”
1 Calculated from https://cpag.org.uk/sites/default/files/Cost_Of_A_Child_2015.pdf and https://cpag.org.uk/policy-and-campaigns/report/cost-child-2019
In your 60s
Carla says: “Once you reach your sixties retirement will probably be in sight, but even at this stage it is not too late to give your pension a final boost. ‘Carry forward’ could be very useful as it allows you to make use of any unused allowance from the previous three tax years.
“As you get closer to retirement and begin to focus on turning your pension into a retirement income you may want to take less risk with your investments. However, if you intend to keep much of your pension invested after you retire, continuing to take investment risk for longer will give it more of a chance to grow in your later years. You could be hit hard by any falls in the market, but if you are taking a long-term approach hopefully you will be able to ride out any losses in value.”
Carla concludes: “Assessing what you should be getting your money to do is something worth asking yourself on a regular basis, as your goals and needs will change as you age. Defining your goals is one thing but working out how much time you need is just as important. Working out whether you are on track to meet your future ambitions and what you can do today to support these goals is powerful. It means your financial future is tangible. You can discuss the impact of different approaches with a wealth adviser and benefit from thoroughly informed decisions.”
Disclaimers:
- The value of investments can fall and you may get back less than you invested.
- The opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.
- The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
- This information is for illustrative purposes only and is not intended as investment advice.
- No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
- Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444).
- Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £46.7* billion in total funds, it offers award-winning personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
We give clients security and wellbeing by helping them to protect and grow their wealth, in order to enrich their lives by achieving their goals and aspirations. Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £40.6* billion on a discretionary basis.
Our intermediary business manages £14.2* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service.
In line with the premium we place on personal relationships, we’ve built a network of 33 offices across the UK, Jersey and Dublin, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
*as at 30th June 2020