When is the right time to get a Financial Plan?

Big life events are often a prompt to establish a Financial Plan.

Retirement is a big one, along with starting a family, buying a home, or the death of a loved one.

In this episode of Informed Choice Radio, the right time to get a Financial Plan.

Nick Bamford is our guest host for this episode, standing in for Martin this week.

I’m Nick Bamford and here at Informed Choice we help remove the stress associated with money by offering a clear explanation of your choices and options.

When should a person have a financial plan?

The obvious answer, I guess, is that everyone should have a financial plan. After all, having a plan may well help them to ensure they don’t get into debt or fail to live the lives that they actually want to live.

But experience tells me that there are some key life events that make people think seriously about their financial future and cause them to get actively engaged with the process that we call financial planning.

We call these life events transition points; an event where significant change is taking place.

Some good examples of these transition points include; changing jobs, or starting a new business, moving home or helping the next generations with education costs, or perhaps helping them onto the property ladder

For a good number of Informed Choice clients the transition point is called retirement.

The R word means different things to different people. There is little doubt that that for most people retirement involves significant change.

That change doesn’t entirely focus on money; it could be other more practical things such as not necessarily travelling backwards and forwards from a place of work each day, although for some people retirement means working at something different rather than not working at all.

It may well involve spending more time at home. And for better or worse for some people more time spent with their spouse or partner.

Planning ahead for this new life together is an important part of the financial planning process. It might even save your marriage! In Japan, there’s a phenomenon known as “retired husband syndrome” which is apparently leading to a spike in the divorce rate for newly retired couples. It’s a problem because many of Japan’s workers, or “salarymen”, spend decades living largely apart from their families, wedded instead to their jobs. When they retire, couples discover they barely know each other anymore. The recommended antidote to this “retired husband syndrome” is to not spend extended periods of time together; day trips are better than month-long cruises!

But retired people may also have plans for more holidays, more travel, spending more time with family and more time with interests and hobbies or even volunteering their time for local charities or associations.

Two-fifths of older people engage in volunteering activities in their local communities. A poll by the Royal Voluntary Service found that one in five - around 2.2 million people over the age of 60 - help out with at least two different charities. As you plan your retirement, think about the good causes where your expertise, experience or time could make a positive difference.

For some retirement may see a significant change in their finances. It may well be that they have less income coming in to the family bank account each month but equally perhaps a different pattern of expenditure.

A common question they will ask is “Do I have enough money to last the rest of my life and do the things that I want to do?

This prompts us to ask some questions that require some real thought. Let me ask you those questions;

What is it that you really want to do? When do you want to do it? How much will it cost? Can you afford to do it now? If not now, when will you be able to afford it?

These are by no means easy questions to answer for some people. I sometimes find that a couple may well have very different answers to these questions and will need some open and honest conversations in order to arrive at a mutually agreeable answer.

We encourage people to start to think about the retirement transition point many years in advance of the actual event This is where the process of financial planning helps.

I describe it as a process because that is exactly what it is. Financial Planning examines every aspect of a person’s life. It examines income and expenditure and how they relate to one another. It looks at assets and liabilities and seeks to understand how assets might generate future income and what is required to get rid of any liabilities.

A key part of the financial planning process is to consider inflows and outflows of money over a long period of time, typically up to age 100.

There is little doubt that most people thrive when they have financial certainty and the transition point of retirement is a particularly important time to have a good understanding of what you have got and what that will provide.

These flows of money we call lifetime cash flow forecasting and they help to understand what things might look like in the future.

Of course they are what they are called “forecasts” and they are based on agreed assumptions for the future. Because assumptions can always be made redundant by actual events it makes sense of course to review these forecasts on a regular basis, typically yearly

Most importantly it considers “What if scenarios?” What if you were to retire earlier than you had planned? What if you were to downsize your home and free up some of the equity; What if you wanted to make some lifetime gifts to your children or grandchildren? What if you needed to pay care fees in the future?

This is the “fun” part of financial planning! The best part is the early retirement question.

Imagine someone who is fed up with work, fed up with the commute, fed up with the office politics who actually, although they don’t know it yet, has the financial wherewithal to go into work on Monday morning and say; “I have had enough, I don’t want to do this any longer, and here is my resignation!” How brilliant might that be?

For some this is exactly the outcome of the financial planning process. Imagine if that was the case for you?

Thank you for tuning in for this episode of Informed Choice Radio. Remember to subscribe so you don’t miss any future episodes.

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Until next time, I’m Nick Bamford and this is Informed Choice Radio. And remember, when it comes to your money, the more you know, the faster it can grow.