Financial Plans – 7 Key Life Events When You Should Have a Financial Plan

There are certain life events that can have a significant impact on our lifestyle as well as our finances and having a comprehensive financial plan in place can provide much needed peace of mind.

What is a Comprehensive Financial Plan?

Firstly, let us define what a comprehensive financial plan might look like.

It should reflect your current financial position and include your income and expenditure, your assets and liabilities and the financial goals that you want to achieve. It should also be based on conservative assumptions around future rates of inflation, interest rates, investment returns and, if appropriate, future salary increases.

At younger ages, a cashflow forecast covering the next five to ten years might be more relevant whereas if you are approaching retirement, you may be more concerned with having sufficient income for the rest of your life. Those in later life might be more concerned with giving money away and reducing any Inheritance Tax (IHT) liability.

A comprehensive financial plan is also one that is regularly reviewed and updated to take into account economic and legislative changes as well as changes to your circumstances.

Life Events

We believe that everyone should have a financial plan irrespective of where they are on their financial planning journey. However, I thought I would highlight some of the key life events where a comprehensive financial plan can prove to be invaluable.

#1 – Starting a Family

The primary function of a financial plan at this life stage is to identify any shortfall in areas such as:

Life cover;
Critical Illness Cover;
Income Protection;
Family Income Benefit.

Analysing cashflow and taking into account liabilities such as a mortgage will help determine what level of cover is required. This will ensure that you and your family are protected in the event of something happening to you and you are unable to work.

For those with surplus funds or where grandparents are wanting to invest on behalf of their grandchildren, Junior ISAs, Bare Trusts and even Junior Pensions may be appropriate.

#2 – Receiving a Significant Inheritance

It is important to understand what assets are being inherited, for example, pension benefits under a nominees’ or successors’ beneficiary drawdown plan, assets held in a trust, property, shares or cash and how these can be accessed and are then taxed going forward.

A financial plan can then look at how the inheritance can be used to meet your short, medium and long-term goals. Funding a property purchase or paying down a mortgage may be a short-term objective whereas investing monies for retirement may be a longer-term objective.

#3 – School Fees

We often include school fees planning within our comprehensive financial plans as the costs can be significant. We can plot a school fees timeline for each child and model the total capital required based on conservative assumptions around school fees inflation and investment returns.

The financial plan can then model how the school fees can be paid which can be from a mixture of earned income, investment capital and regular gifts out of income from grandparents.

#4 – Divorce

A comprehensive financial plan is crucial when going through a divorce and it can help you in several different ways:

Determining how best to split your assets.
Identify where you can afford to live.
Work out how much money you need each month.
Show you the different options available with regard to your pensions.

Post divorce, a financial plan can help you take stock and plan for the future. This can include identifying future income and expenditure and any shortfall in future retirement planning. A savings strategy can then be put in place to ensure that you can generate sufficient income in retirement.

#5 – Selling A Business

Ideally the financial plan should be in place several years before selling your business. This can help you identify your ‘number’ i.e. the amount you need to sell the business for to be financially comfortable for the rest of your life. We can then work with you alongside your accountant, business adviser and Solicitor to help you prepare for the sale.

Tax planning is also vital prior to the sale of any business and may involve extracting surplus cash from the business in the most tax efficient way and Trusts can also be set up if appropriate.

Post sale, the financial plan will be vital in designing a tax efficient income strategy to ensure you and your family can enjoy your desired lifestyle for the rest of your lives.

#6 – Retirement Planning

Again, the financial plan should be in place several years before retirement in order to identify your ideal lifestyle and what actions need to be carried out so that you can achieve this in retirement. There may be a shortfall and so further savings may be required. Alternatively, you may have more than enough to enable you to achieve financial independence earlier than expected.

The financial plan can help in designing a strategy for drawing down an income from your accumulated assets and showing how your income needs can be met for the rest of your life.

#7 – Estate Planning

A financial plan can identify any potential Inheritance Tax (IHT) liability and we can model various strategies to minimise this. For example, we can assess how much you can afford to give way to children and grandchildren during your lifetime without compromising your own lifestyle and taking into account any long-term care needs.

The financial plan can also model the impact of downsizing from your current property, for example, as well as gifting monies to charity

Summary

I have highlighted just some of the key life events where a financial plan can be essential.

Our view is that everyone should have a financial plan as the benefits can be enormous. For our clients this includes:

Having the peace of mind that they and their families are financially independent whatever happens.
Worrying less about their finances.
Being more resilient to financial setbacks such as a downturn in investment markets.
Enjoying life more knowing that they have a strategy in place to keep them on track to achieve their financial goals.

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