Life begins at 40
The children have grown up: one wants a new car, the other needs help at university, and you're wondering whether you've put enough into your pension plan. Justin Urquhart-Stewart presents a guide to mid-life financial planning
So it is time for a mid-life financial service check. This is now a key moment for some considered thought and reflection about your family's financial position. So sit down and prepare to change your oil and polish your plugs.
I have previously mentioned the benefit of constructing a family balance sheet of your assets and liabilities. Now is the time to do this again. If things have not gone quite as you had intended, then the good news is that there is still time to do something about it.
Firstly review the assets, which should include your home and its contents as well as some savings. Hopefully there is a pension scheme (either a personal or a company one) running.
Check up on all the values of these items, not forgetting any insurance policies you may have. Against this, list your liabilities. These will include the mortgage and any other loans and overdrafts.
Add both columns up and, with a bit of luck, this will show a positive net worth. Don't worry if it is not as large as you had hoped. Raising a family is not cheap.
But now is the time for some clear direction. This is the stage for you to concentrate on building up your net worth while covering the other expenses heading your way.
The chances are that your children will remain a liability for some time yet. As my mother used to say whenever we spoke about leaving home: "The only thing you leave at home is a mess".
This, it would appear, is an increasingly common position for parents when attempting that final push to give flight to their offspring. We are finding it increasingly difficult to ensure that our children are able to exist without further parental support.
University and college may be vital but, in these days of limited grants, they are expensive: over pounds 3,000 per annum. Inevitably, this is leading many offspring to consider staying under the parental wing while studying.
Although there are student loans, few of us wish to see our children in debt as they embark on their careers.
Your parents also need planning for as well as children. It may not be the most palatable subject to discuss, but by now they will have retired and it is sensible to discuss the provision for their care.
Whether it is living with you or in sheltered housing, start considering the alternatives soon.
Additionally the preparation of powers of attorney to cover for mental incapacity is essential for all of those concerned if something does occur.
Good housekeeping here also includes a gentle reminder about wills and appointment of executors being kept up to date. None of these are expensive, but they can have expensive consequences if not addressed.
Apart from the hatchlings making a noisy and prolonged departure, it is to be hoped that your expenses are declining and your disposable income is improving. But before quiet holidays for two are planned, I must counsel severe caution.
Now is the time for you to be increasing payments into investments for retirement. If your pension has grown check it anyway to establish an estimated annual income from it.
Can you live on that now? Or more to the point, could you live on it in 15 to 20 years' time, taking into account inflation? Seek some professional guidance. Actuaries may not be very amusing but they are very useful.
But don't over-commit yourself. It is difficult if not impossible to extract money back from a pension scheme and expensive to scale back commitments once they have been made. You may need to access the cash (for university fees?). If there is too much uncertainty, consider personal equity plans as an alternative. These are tax-free and will allow you greater flexibility.
Most of our savings and investment pots are likely to be still quite modest. Try and identify how you can increase monthly contributions to savings schemes. In a few years' time you will appreciate anything you can put away now.
Check to see if you have any old endowment policies due to mature. Yes, they may only have been pounds 25 per month but hopefully they have amassed a reasonable value. Check also if you have any company save- as-you-earn schemes maturing. If not, now is a good time to start one if your employer has such a scheme.
If you are fortunate enough to have these maturing then seek advice. But take care. Financial advisers sniff out lump sums they can earn commission on better than aardvarks do ants.
Go for quality advice and shop around. I don't believe in free advice - they are only getting their money from you elsewhere.
They and you must look at the whole picture to include the mortgage and see whether it is better to pay that off first. Each circumstance will be different.
There is an additional issue here. These days earlier retirement dates are becoming more common. It would be wise to include this in your planning, particularly if the chances of further employment become more difficult.
I add to this critical illness cover. First check with your employer for any cover. If this is low or you are self-employed then shop around. It is very useful but can be expensive. Don't worry if you can't replace all your income. You can certainly ease the situation. So hope for the best but plan for the worst.
I know none of us wish to talk about it, but we must address our own mortality. As part of the mid-life service check take stock of your family's wills. What are you going to leave to whom, and how?
A review will throw up any questions on inheritance tax, executors to help after you have gone and whether you need to establish any simple trust for other family areas, such as children by a former marriage.
So I hope this gives an outline of your mid-life service. Subject to some failing bodywork and maybe a bit of dodgy undersealing in years to come, your financial arrangements should be in good order for some years.
But, as they say, check it regularly. Your financial oil and water levels always need watching.
The author is business development director at Barclays Stockbrokers.
BEFORE YOU MAKE A MID-LIFE DECISION
Sit down and draw up a balance sheet of your financial assets and liabilities.
Be prepared for some continuing expenses, especially if your children go to college.
Draw up a plan to increase your future savings, investment and pensions provisions.
Ensure you and your spouse have up-to-date wills.
Forget to persuade your parents to make their own financial plans to cope with possible nursing care in their old age as well as inheritance tax planning.
Tie up too much money in a pension scheme. You might need some free capital for emergencies. Consider a personal equity plan as a compromise.
Forget critical illness or health-care planning.
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