Last month we looked at basic financial planning in the early part of your life – through your twenties, thirties and forties. But what about the second stage of life? It’s easy to assume that all the major changes in life – finding a job, marriage, a family – take place in the early years. In fact there are just as many major changes in later life and the need to keep on top of your financial planning is, if anything, even greater.
In your fifties
Along with your forties, your fifties are almost certainly the age when your earnings are at their peak – and by now there’s a good chance that your children will no longer be dependant, giving you the chance to take two important financial planning steps.
First of all, your fifties are the time to maximise your savings ready for retirement, and to make sure that they are invested as tax efficiently as possible. The right action now could make a lot of difference when you eventually retire, whether it is in maximising your pension contributions, or opting for the flexibility and tax efficiency of Individual Savings Accounts.
A good independent financial adviser will be able to prepare you a ‘lifetime cash flow’ forecast showing how much cash is required for your ideal retirement – and how much you need to save in order to guarantee it.
If your income allows it, your fifties is also a good time to reduce debt, be it long term debt like a mortgage or shorter term debt like credit cards. Conventional financial wisdom dictates that you should almost always pay off the debt with the highest interest rate first – which would normally mean paying off your credit cards before your mortgage. But for many people the allure of being mortgage free is a very powerful motivating factor: in addition there’s always the danger that if a credit card is paid off it can be built up again – especially with the winter winds of February making a week or two in the sun seem almost irresistible.
For may people their fifties are the decade in which they inherit wealth from their parents. If the amount is significant then specialist financial planning advice is always a good idea – there may be a choice to be made (or a balance drawn) between saving, spending and reducing debt with any sum that you’ve inherited.
In your sixties
If you’re planning to work on and retire in your mid-sixties or later, then the early part of the decade should simply be a repeat of your fifties: continue to save, reduce debt and work with your financial adviser to keep your plans on course.
However, at some time in our sixties the vast majority of us will retire – at which point some serious financial planning needs to be done. The options around taking your pension can be many and varied, whether it is deciding how to take your income or deciding how to invest any tax-free lump sum you receive. The options at retirement are outside the scope of this article, but retirement is a time when working with your financial adviser is crucial: the decisions you take now could well affect your standard of living for the rest of your life.
Your sixties may also be a decade where you start to think about your long term health and any care you may need in later life. There are very few of us that reach our sixties without some health worries along the way and it may be that private medical insurance or long term care planning are all subjects that you now start to think about.
If you are wealthy, then your sixties are also the decade in which you may need to start considering inheritance tax and ways in which you can protect your estate against the tax man. As above, there are several different routes you can go down but the first and most sensible option is to take independent financial advice from an expert.
In your seventies
To a great extent financial planning in your seventies will be dictated by your health. Hopefully your income for the rest of your life is now secure and, if you are wealthy, you may also be able to look at giving away some of your income and/or wealth to reduce an eventual inheritance tax bill.
Essentially, your seventies are a decade in which to relax and reap the rewards of a lifetime of sensible financial planning. Continue to have regular meetings with your independent financial adviser and continue to take all the prudent steps with regard to tax efficient investment and savings. But above all, the message for your seventies is simple: “You’ve worked hard: you’ve planned your finances: now enjoy it!”