Fix your finances in your 40s, This Is Money

Managing partner, Adam Walkom, recently contributed to an article entitled ‘Fix your finances in your 40s: Eight things to check with a financial adviser to ensure your family are protected and your future wealth is on track’ written by Angelique Ruzicka for This Is Money.

In the section about pension goals, Adam writes:

‘Many employers offer a “matching” scheme where they will increase their contributions if you do yours. These are normally great.

‘The big caveat with all pension contributions is that you cannot touch these funds until you’re at least 55, so whatever happens they’re stuck in there.

‘Now, that’s fine, but people need to be aware of this so they don’t over-contribute just to be tax-effective and leave themselves stuck.’

To highlight the role of a financial adviser, Adam also talks This Is Money through his three-point plan for a couple, the Whites, who are in their 40s:

1. Constructing a plan

Walkom says he asked the Whites what they wanted their future to look like. He says: ‘We imagined their ideal future scenario. Where are they? What are they doing? What is that going to cost?

‘We captured all this information and built a financial model for the Whites that shows in as much detail as possible their current and potential future states.

‘Oliver and Claire really liked this as it gave them a strong sense on where they are today and what they need to do in the future.’

2. Dealing with the risks

Walkom then went about constructing a ‘safety net’ for the Whites’. He says: ‘We made sure Oliver and Claire reviewed and updated their will and started considering a power of attorney for each other.

‘We increased the life cover for Oliver and put Claire on the policy as well. We also added another £100,000 critical illness cover which will pay out a lump sum if either of them because seriously unwell.

‘We allocated some of their future monthly income surplus to build a safety net of cash. Oliver and Claire agreed around £50,000 was appropriate for this figure.’

3. Maximising growth

Maximising growth involved a review of the couple’s ISAs (individual savings accounts) and pensions. Claire’s old pension and Oliver’s current employer pension were both invested in the default funds.

Walkom says: ‘On review those funds were not performing well, so we switched their funds into low-cost 100 per cent equity tracker funds. Why 100 per cent equity?

‘Because realistically Oliver and Claire will not be touching these pensions for 20+ years. In that time the compounding effect of higher growth from just owning equities (versus owning bonds and other lower-growth assets) will more than offset any volatility over the years.’

For their ISAs, Walkom reduced the risk a little more as he wanted them to be able to access the funds when they need to.

Walkom highlighted the need to make regular contributions, explaining ‘Regular contributions are also very important as it means you’re buying even on the down moves in markets, and it is in effect ‘saving while you sleep’ as you never see the money in your current account to spend.’

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