Are you financially fit for the duration?

Whatever your age, there is no denying that people are living longer. A recent white paper from the World Economic Forum published in May this year, confirms that many of us may indeed live to 100!

The 27th September was hailed as “International Fitness Day” and on a similar theme, the BBC recently featured a series called ‘How to stay young’ looking at the various elements in our life that can age us prematurely, or cause stress. Common sense for most of it, but stress and specifically financial stress featured on more on one occasion.

So, how can you be financially fit, and when is the best time for a financial review? Is it left to the New Year or perhaps it features further down on the to-do list, depending on how many things you are juggling in your life at any one time? With increasing life expectancy, some will be facing a retirement that may be as long as their working life and being fit enough, both physically and financially, requires expert planning. The sooner anyone starts to address planning for retirement or your life after work, the better.

1) Establish your income requirements for life after work

Having a date by when you would like to be financially able to stop work and a good estimate of what your regular expenses will be in life after work are the foundations of any financial plan. A good starting point is looking at the regular expenses you have today and identifying which of these will continue after you stop working. Depending on your age and circumstances, your expenses may include mortgages, childcare, car payments and are likely to be significantly different to your future needs. In addition, consider the cost of hobbies, holidays and car changes to provide a more accurate picture of how much you will actually require in retirement.

2) Review existing arrangements

What arrangements do you already have in the background? Existing pension policies, benefits from previous employment, savings, investments, rental property and other assets can all play a part in securing income in retirement. Dig out the details of what you already have and quantify how much these can provide for you later in life. This is what you have now.

Once you know what you already have, these can be analysed to ascertain if they are invested in the correct, most efficient manner.

3) Seek professional help to build your plan

While there is plenty of information available online to research and do much of your own financial planning, nothing can compare to qualified financial advice. Using reasonable assumptions, a qualified financial planner will be able to calculate the capital sum you require to provide you with the level of income you need for life after work. A planner will also be able to calculate the level of monthly funding you need to commit to now in order to achieve your capital sum. A good planner will create a diversified, tax-efficient investment portfolio customised to suit your personal circumstances which will maximise the probability of your plan succeeding over time.

4) Let your employer and the taxman take some strain

Under current legislation, all employers are now legally bound to provide retirement benefits to most employees. If you have not already done so, look to join your employer’s pension scheme. Your employer may well match your own contributions and tax relief will be automatically added to your personal contributions.

On route to being financially fit, there is never a bad time to use your tax allowances whichever stage in life you are in. ISA’s and specific pension plans provide valuable tax incentives that can accelerate the growth of your investments.

5) Review your plan on a regular basis

The key to successful planning and having a successful outcome is a continuous review. Financial planning is an ongoing process, requiring a ‘health check’ at least on an annual basis. Doing so will keep you informed as to whether you are on track to meet your objectives, or if not, what you need to do to get back on track.

By Evan Duffus
Published in The Press & Journal on 22 October 2017

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Category: Pensions, Savings