The key life events which you need to ensure careful financial planning for

Ensuring a happy retirement and the financial security to help those you love while looking after your needs is a whole life pursuit.

But it is also true to say there are key life events that require special consideration when it comes to financial planning.

Now, reading this article you might well wonder how relevant some of this is to you, especially if you own your home, or have a well-established career and savings pots.

However, aside from some of the later life considerations, if you have close family such as a spouse, children, grandchildren or other close relatives or people who you might want to factor into your future financial considerations, then this will still matter to you.

Likewise, if you’re just getting started with these aspects of your long-term plans, then starting as early as possible is critical.

Here are some key life events we should all keep in mind to ensure successful financial planning.

Starting work

Starting work might seem like an obvious, or even a relatively inconsequential one in the greater scheme of things, but it is perhaps the most important opportunity in a young person’s life to set themselves up for the best financial outcomes possible in the long-term.

A young person getting started with work should try to consider their long-term goals as a starting point. Common goals include paying off student debt (from tuition fees and/or an overdraft), buying a house, or even saving to go on a trip of a lifetime. All of these are perfectly reasonable goals.

However, very overlooked in the context of the beginning of a young person’s career is just how big an opportunity that person has to start saving for their long-term financial security.

What is critical here is to make sure when you start your first job that you’re contributing to your workplace pension, and ensure that it is invested in a way which maximises its potential for future growth. Aside from anything else, your pension has lucrative tax incentives that will make the sums look even better over a long period of time, thanks to valuable tax reliefs.

For parents or grandparents looking to help their children or grandchildren in this position, it can be a good idea to help with certain costs as they get started in their careers, but this mustn’t come at the expense of their own financial plans. There are some necessary tax considerations to have in mind before gifting.

Buying your first home

Buying a first home is seen as an increasingly difficult feat to achieve. But this belies the numerous avenues for someone seeking to get on the property ladder to get help.

But thinking in terms of what we can do with our own financial planning to make home ownership a reality, it comes back to saving into the right kind of product to maximise opportunities, and crucially doing so as early as possible.

The Lifetime ISA (LISA) is a flawed but generally under-used product which could be extremely helpful to someone looking to get on the property ladder, which gives up to £1,000 a year in Government-funded bonuses toward a deposit.

Although buying a home is not necessarily right for everyone, it is a solid foundation on which to build long-term financial freedom. It is also important here for parents or grandparents to consider their own financial plans if they wish to contribute toward a child or grandchild’s deposit as there are potential tax and other implications for their own finances.

Becoming a parent or a grandparent

Generally considered one of the most expensive times in a family’s life, children are one of life’s greatest joys, but they come with all manner of financial considerations.

A parent who is about to become a grandparent for the first time will almost certainly want to help in any way they can at this point, which is laudable. But depending on your own stage of life it is important to consider how much you can realistically afford to sacrifice to help your children raise their own kids.

The implications for this, around rules such as inheritance tax (IHT) gifting allowances and other calculations which include the long-term viability of your own financial plan, make it important to consider seeking professional advice. This can be done with your whole family in mind and the needs of your own future, as well as your children and grandchildren.

Peak earning years

Perhaps less discussed than other life events, but potentially no less important, are your ‘peak earning years’. Peak earning years are the period of your life, typically beginning in your 40s before tapering as you get into your 50, when your income level is the highest it is likely to be in your whole career.

It is critically important to be aware that you might be in your peak earning years, as this is the time when you have to ensure your long-term financial plan is working as hard as possible for your future.

These are the years when you’ll feel most able to take advantage of important allowances such as ISAs and pensions, and you’ve still got lots of time to ensure more growth potential.

Retirement

This is obviously a big moment and a huge life event, where we transition away from a long career to stepping back from paid work or stopping work entirely.

Increasingly retirement is no longer seen as a ‘cliff edge’ where one day you just down tools and stop, and more likely a glidepath where you decrease the hours you do as other priorities (such as grandkids) take shape.

While the old way of thinking of retirement as one ‘moment’ in time may be on its way out, at the point which you think you are ready to begin drawing on your pension and other assets you’ve accrued, it is essential to seek professional advice.

Doing so will stop mistakes such as triggering the money purchase annual allowance (MPAA) too quickly. An adviser can work with you to model which assets it is best to draw upon at what times, to ensure your portfolio is sustainable over the long term.

Later life preparation

Another less-discussed part of retirement, later life preparation is no less important. When it comes to our costs in retirement, we tend to think of it as a “U shaped” graph.

At the beginning of retirement, our spending is higher as we cash in on some of the benefits of access to our pension pots. It could be buying a dream retirement home, a nice car, a world cruise, or anything else – and this is no bad thing!

Once we settle into the regular pace of retirement, then our costs tend to reduce. The mortgage is paid, we have a comfortable home and other aspects are well settled.

But in later life, costs unfortunately start to rise again. This is because the older we get, the more help we tend to need – whether it be gardening, cleaning round the house, or more extensive care for those whose health or mental capacity begin to deteriorate.

This is a difficult stage for many people to face, but is unfortunately essential to consider in our overall planning. Having enough to pay for these needs is critical, while also being able to mitigate any potential tax implications and ensure we can sustain a legacy for our loved ones after we’re gone.

As with all the other life stages mentioned above, an adviser can help you and your family at every step to ensure everyone is on the right path to sustainable financial freedom.