Could these be your roaring twenties?
- 13 January 2020
- 10 minutes
It’s that time of year when the press tells us we should be making our new year’s financial resolutions. But this January we not only turn a new year, we turn a new decade. So we thought it might be appropriate to focus on longer-term goals and plans. What are your key goals for the next decade? Could it be repaying your mortgage? Sending your children to private school or supporting them through university? Or maybe selling your business and retiring?
With mortgage rates at historical lows, the interest many of us are paying on our home loans means we can divert some of the money we used to pay in interest into paying off more of the capital. Over the longer term, the more you pay off the more you could save because future interest payments will start falling to reflect the lower loan value. In a virtuous cycle, this means you can pay off even more capital. And so it goes on.
Check your mortgage deal first, because you might be charged for making over-payments, although many lenders will let you overpay up to 10% a year without penalties .
School and university fees
The average cost per term for a private education is £4,763 or £14,289 per annum ; and significantly more if your children are boarding . University fees in the UK are up to £9,250 per year . On top of this, parents are likely to support their children with housing and spending costs. The total cost of a university education is currently estimated to be around £40,000 over a three-year course .
This is a lot of money to fund out of your income so you could consider planning ahead. Starting early means you could save more because you’re saving for longer, and you could benefit from any potential investment growth in the interim. Although the value of investments may fall as well as rise. Using an ISA can shelter capital and potential income returns from tax, although tax treatment depends on individual circumstances and may be subject to change in the future. In the current tax year you can save up to £20,000 in this way.
Pre-retirement wealth check
If your big plan is to retire, now might be a good time to review your current pension savings. If you’ve had a number of employers over your career, you’re likely to have more than one pension scheme. But have you been keeping track of them? Did you choose the default option when you joined and do you know how your savings are currently invested? How likely are they to deliver the retirement income you’d hoped for? Now could be a good time to find out whether their investment profiles are appropriate to where you are now and where you want to be. If there is likely to be a shortfall between your aspirations and the reality, you might still have time to maximise your tax-efficient savings in an attempt to boost your potential income in the longer term. And if you are married, have you discussed your plans with your spouse? What is their financial situation? Are they making the best use of their own allowances?
Finally, look at your over-arching insurance strategy. Not having sufficient protection in place can often derail other plans. Most of us take out life insurance when we get our first mortgage, but – as with our pensions – there is the chance that we consider this a one-time event. Our lives change and all aspects of our financial lives should move in parallel to reflect this. Income protection is one area that many of us overlook with only 0.9% of working-age adults having a policy in place . If you became chronically ill or incapacitated could you and your family maintain your current commitments and lifestyle?
But before tackling your future, a new year is a chance to reflect on the past. Over time it is easy to accumulate lots of different financial products making it hard to have a clear overall picture. The first step to understanding your finances is knowing what products you’ve got. So have a financial admin day. Take out all your paperwork, contact pension and investment providers for up-to-date statements and check insurance policies. If you’re not sure what any of it means or what you have call the providers and ask.
 ISC Census 2019, https://www.isc.co.uk/media/5479/isc_census_2019_report.pdf
[4 ]UK Insurance and Long-term savings, Association of British Insurers October 2018; UK Labour Report, Office for National Statistics, January 2019
Pensions are a long-term investment. The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits, which isn’t guaranteed, and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.
Always seek a professional opinion as tax rules can be complex, depend on individual circumstances and are subject to change.
These protection policies have no cash-in value at any time. If you don't pay your premiums on time your cover will stop, your benefits will end, and you'll get nothing back. If the benefit amount has not been paid out by the end of the selected term, the policy will end and you'll get nothing back.
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