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financial planning in your forties

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

Sources
https://www.telegraph.co.uk/money/smart-life-saving-for-the-future/financial-advice-in-your-forties/?utm_campaign=tmgspk_plr_2144_AqvZbbk8gXHK&plr=1&utm_content=2144&utm_source=tmgspk&WT.mc_id=tmgspk_plr_2144_AqvZbbk8gXHK&utm_medi

Understanding the new rules around Lifetime Allowance, fixed protection and individual protection for large pension pots

If you are lucky enough to have a pension pot or a pension plan that works out your savings as being worth more than £1.5 million, then when you take your benefits, it is likely that you will have to pay a lifetime allowance tax charge on the excess.

The existing fixed Lifetime Allowance (LTA) regime was introduced in April 2012 and capped savings at £1.5 million. However from 6th April 2014, the lifetime allowance will be reduced to £1.25 million. A new form of protection called Fixed Protection 2014 is being introduced to protect those who have already built up pension pots of more than £1.25m, but no more than £1.5 million. People with such pension pots will be able to apply for Fixed Protection 2014 from August 2013, but no later than 6th April 2014.

You can’t have Fixed Protection 2014 if you already have primary, enhanced or fixed protection from 2006 or as revised in 2012. You’ll also lose Fixed Protection 2014 if you:

  • have a contribution paid to any of your money purchase pension pots
  • build up new benefits in a defined benefits or cash balance pension pot above a set amount
  • join a new pension scheme – unless you’re only transferring pension savings from one of your existing schemes into the new scheme
  • start saving in a new pension pot either under an existing pension scheme or a new pension scheme.

As well as Fixed Protection 2014, the Government has announced that Individual Protection 2014 will be available when the LTA is reduced to £1.25 million. The details of Individual Protection 2014 are still to be announced but it is expected that:

  • it will give you a lifetime allowance equal to the value of your pension rights on 5 April 2014 – up to an overall maximum of £1.5 million
  • you will not lose Individual Protection 2014 by making further savings into your pension scheme
  • any pension savings in excess of your lifetime allowance will be subject to a lifetime allowance charge

You’ll be able to apply for this from 6 April 2014. You can hold both Fixed Protection 2014 and Individual Protection 2014 but you can’t apply for them at the same time.

If you’re unsure of the value of your pension savings and don’t know whether you need Fixed Protection 2014 or will also need Individual Protection 2014, contact your scheme administrator or financial adviser.


Sources: www.hmrc.gov.uk

 

building your financial future

Tough Times Ahead For Families

The above headline could have easily read “Tough Times Ahead for Everyone” but it is likely that the effects of the austerity budget, and the financial deficit it aims to redress, will be felt more acutely by the younger generations and these effects are likely to last for many years.

With inflation out pacing wage growth, tax credits being withdrawn, child benefit frozen and the Child Trust Fund abolished, families are becoming progressively worse off.  Undoubtedly the elderly on low incomes will also be hit by higher inflation but it is worth noting that winter fuel payments, free bus passes and free TV licenses have all been retained and that the basic state pension was the only benefit to be increased.

If this was a case of short term pain for long term gain things wouldn’t be so bad but unfortunately the longer term picture looks even less rosy.

The NHS is the only major department whose Budget has been increased and it is reckoned that around 45% of total spending goes to the 16% of the population who are over 65. This is perhaps not surprising, after all, it is inevitable that people will require more medical care towards the end of their lives but this generation are taking out more than they have put in. 

To redress this the state pension age has increased, and we are likely to see further increases over the coming years as the working population are forced to contribute to the welfare system for many more years.

The counter argument is that money is now passed down the generations, as increased home ownership provides the next generation with a level of inherited wealth not previously enjoyed.  However, inherited wealth cannot be relied upon as increased longevity and rising long-term care costs force more people to sell or borrow against their homes.

So what can be done?  The key issue to recognise is that while there may be less spare money available, saving for the longer term should not be the first victim of household budget cuts.  Because of the effects of compound growth, a pound not saved now will be far more damaging to your longer-term wealth than a pound not saved in later years.

New Tax Year Resolutions

As the new tax year is upon us, why not take time to re-appraise your financial position. By making some simple changes your financial position could be significantly enhanced. With the new higher rate of income tax and low interest rates, it is time to take action to make sure your financial planning meets your objectives.

Our top 10 tips are listed below;

1) Make use of your ISA allowances

If you are fortunate enough to have savings it is important to make sure that you do not pay unnecessary tax on the interest. The Cash ISA allowance has now been increased to £5,100.

2) Make full use of personal allowances

Your personal allowance will depend on your age and income but if you are not using all of your personal allowance consider whether income producing assets can be transferred from your spouse.

3) Consider ownership of income producing assets

If your spouse pays tax at lower rate than you it might be worth moving income producing assets into their name.

4) Protect your personal allowance

If you have taxable income over £100,000 your personal allowance will be reduced by £1 for every £2 in excess of £100,000 until it is completely eroded. The personal allowance could be reinstated by making pension contributions or by sacrificing salary in favour of other benefits.

5) Look at your protection arrangements

Life cover is one of the few things that have got cheaper over the years. If you have old life policies it may be worth seeing if these can be replaced with cheaper cover. This would not be advisable though if your health has deteriorated. It is also important to also make sure that your cover is sufficient and the term remains appropriate.

6) Put life cover in trust

If your life cover is not written under a trust it will form part of your estate and may therefore be taxable on death. Furthermore your beneficiaries will not get the proceeds until probate has been granted.

7) Claim gift aid

If you are a higher rate taxpayer and have made gifts to charities you can claim tax relief at the rate of 20%

8 ) Set mortgage interest against rental income

If you have a buy to let mortgage interest can be offset against your rental income for tax purposes. It is therefore best to secure debt against your rental property rather than your main residence although what matters is the purpose of the borrowing.

9) Consider repaying Mortgage Debt

With savings rates at all time lows it might make more sense to use savings to repay mortgage debt, particularly if you are on an uncompetitive fixed rate. Watch out for early repayment charges.

10) Make a Will

The laws of intestacy are complex and are unlikely to result in the best outcome for those you would want to benefit on your death. Having a valid and appropriate will in place is vital.

By David Anderson – Chartered Financial Planner @ Concept Financial Planning Ltd

A business owner? – What’s your Personal Plan?

Most business owners have a business plan setting out the future direction for their business and, as the environment in which the business operates changes, periodically revisit and revise this plan.  However, far fewer business owners have applied the same level of planning to their personal finances.  In fact though, having a personal financial plan is key to developing an appropriate business plan.

If for example you wish to retire in 10 years time you need to understand what resources you will need and, as things currently stand, what might actually be available.  In this way you can identify the shortfall and consider how this will be breached.  Will you build wealth outside your business, inside the business or through a combination of the two?  Whatever the journey looks like, unless you have identified the destination you will never know when you have arrived!

Only once you have a personal plan can you begin to properly appraise both your business and your personal financial arrangements.  By considering both your current and future lifestyle aspirations you will know the level of profit your business needs to generate which will then shape your business plan.  Having a plan will also allow you to understand the role your business will play in your future.

If your retirement hinges on the sale of your business (risky) you need to consider how the business value can be maximised.  This is likely to mean gradually making yourself surplus to requirements; after all, who would pay good money for a business where the most valuable asset is not included in the sale? 

Rather than rely solely on finding a buyer for your business it makes sense to set aside other monies for retirement but, without a proper plan, you will have no way of knowing whether the money you are setting aside is sufficient or if it is being invested in the right way.

 A formal pension arrangement has its attractions and can be a very useful tax planning tool for the small business but, the key is in adopting an appropriate investment strategy.  Knowing when you are likely to require money from your pension scheme and in what form the benefits will be taken will allow a coherent investment strategy to be adopted.  A plummeting stockmarket has left many people’s retirement plans in tatters but, if a proper plan had been put in place, those nearing retirement would have been progressively reducing stockmarket exposure and so limiting losses.

 Whoever gets into power next, the need to raise taxes seems clear (witness the introduction of a new 50% rate of income tax and the restriction of tax relief on pension contributions for high earners).  As legislation changes, any existing financial arrangements need to be reviewed.  So, while drawing up a personal plan is crucial, it is equally important to keep reviewing it to ensure that the arrangements you have made (both in terms of your business and your personal wealth) remain appropriate.

David Anderson Chartered Financial Planner

Concept Financial Planning Ltd

The WHAT IF plan?

Have you ever thought about … what if? Just 2 words but with so much impact. What if … you could not work? What if … you fell ill? Or more seriously what if you died tomorrow? …
No one expects or wants these events to happen, planning for the consequences of the events is much more important.

Lets take a look at just one scenario and the impact this could have on you –

What if … you are unable to work?

We all understand the importance of insuring your tangible assets such as cars, household buildings and contents – now lets say that you come home one day and they are just a pile of ash. To add to the catastrophe you realise you have forgotten to renew your household buildings and contents insurance.

What would you do? How long would it take you to get back to the position you are in today? Probably a year or two perhaps, maybe longer? The point is you can. Your possessions, car or house do not earn money, you do. You are the income producing asset in your home.

We often are told ‘I can’t afford the premiums’. We do understand it can be difficult particularly during current economic conditions. However, the problem is not finding £40 per month out of your salary. The problem is your family finding £1,000 per month when they don’t have your income coming in. A good budget plan can help to review your monthly expenses and concentrate on your priorities.

Now think about your partner and if he/she is working or a mother/father or both! – the jobs that they do and the cost of childcare arrangements are often underestimated. What if … they were unable to work?

Income protection insurance is designed to replace a part of your lost earnings, helping to maintain important items of expenditure, to help you to meet the cost of running your home when illness or accident prevent you from working.