Published: 06/09/2018 By Martin CardWhilst on the way to a client meeting recently (a client who is enjoying their later stage of life but who is also looking to move) I remember my study from the days of the Financial Planning Certificate. Whilst a long time ago and well below the current requirement of qualification for giving advice it did teach me some good points about financial planning. In particular the financial life cycle.
For those who have not thought about it or were unaware the financial life cycle refers to the different stages someone will go through and how they are affected by income, expenditure and family circumstances.
My study taught me that the early working years would see adults developing their careers and accumulating assets. This would include building their savings, building their pension accounts and buying a property. During this phase income and expenditure will ebb and flow with the possible introduction of children or life changes like redundancy etc.
Later working years see individuals preparing for retirement by ensuring their retirement provision is on track and perhaps maximising savings into pensions and other vehicles. Those of you who are as old as me may remember the tiered calculation basis for personal pension contributions will remember that over the age of 60 you could contribute 40% of your net relevant earnings. This was perhaps possible because the children had flown the nest and were no longer dependant.
Retirement years then saw what we now refer to as the decumulation process. Those years of saving and building that nest egg could finally be enjoyed – with a sound centralised retirement proposition in place of course.
Now I sat my Financial Planning Certificate many years ago and things have changed. Most importantly, in the context of this post, across the UK the average age of a first time buyer is 30 and is apparently rapidly heading towards 40. This means there is a large chunk of the early working years where individuals are not achieving those aspects of that part of their life cycle as they are still saving for a huge deposit on their first property. More importantly, there is a longer period of time where their parents, who would normally have been accumulating wealth in their later working years, are helping their children remain at home and save for that deposit. This has to have an effect on the saving capability of the later working years individuals. It has to have an impact on the ability to provide for themselves in retirement. Furthermore, where early working year individuals are having to save for a deposit they are not building their nest egg for retirement. The effect of this has yet to be seen.
It is apparent that the financial life cycle has changed, for some, in a big way and it is not just the fact that early working year individuals are not able to achieve what was perceived to be their goals. The knock on effect of their inability to achieve their goals can have a huge impact on later working years individuals to build their nest eggs for their retirement years. Fortunately financial planning has evolved and the use of equity release, as an example, could help provide a retirement income or perhaps a deposit for an early working years individual.
But should people have to resort to this?