According to a recent Office of National Statistic report*, ‘The number of centenarians has more than doubled since 2002, with an estimated 15,120 centenarians living in England and Wales in 2022’.
So, if we are living longer, how will we ensure financial security in later life?
The answer is to start financial planning now!
Creating a financial plan can happen at any age and with more people living to over 100, we need to consider the sustainability of our finances over a longer period.
As holistic financial planners, we are here to help our clients develop a clear financial strategy that can ensure stability throughout their lives and support the planning for younger family members, who are also likely to live longer.
First things first
The first important step in saving for the long term is having your own finances under control. An essential part of ensuring financial stability is to be in control of your own cash flow and be mindful of your expenses. Being aware of your income versus expenditure is the key starting point. Creating a budget will enable you to keep track of where your money is going.
Once you have clarity on your income and expenditure, it is advisable to use any surplus funds to build a ‘pot’ for the future. We always want to understand a client’s time-horizon, of what they want to achieve and by when, to create a bespoke all-encompassing financial plan. Albeit, providing a flexible strategy that can be adapted depending on life events.
In the current climate the cost of living is increasing, therefore, if a small sum can be saved each month, this could have a significant impact in the longer term.
It is no secret that with older age comes potentially increased medical costs, costs for care and/or support in general**. Saving a regular small sum of money early on and enabling this to grow provides another source to rely on if costs for care are required.
Future generations
Once our own finances are under control, a potential focus may be how you can ensure the financial security of younger generations, i.e. children, grandchildren etc; putting them in a more stable position later in life. As younger generations are also likely to live longer, starting them on a financial journey at a young age and encouraging them to save even small amounts over the longer term, can help to ensure that they have sustainable assets in place as they get older.
JISA
One vehicle that could be used to establish the future financial security of younger family members may be to set up a Junior Individual Savings Account (JISA). This is a type of savings account designed specifically for children in the United Kingdom that was introduced in 2011 as a replacement for the Child Trust Fund, and offers a tax-free way for parents, family members and friends to save money for a child’s future.
There are two types of Junior ISA: cash Junior ISAs and stocks and shares Junior ISAs. The main advantage of a Junior ISA is the tax-free savings that it offers. Any interest or investment growth is not subject to income tax or capital gains tax, meaning any money saved in a Junior ISA is entirely free of tax.
The maximum amount you can put into a JISA in the current tax year is £9,000. You should know the individual gifting the money gives up their rights to the funds so you cannot withdraw it, and the child can access the funds from the age of 18.
Childhood pensions
A second option is to establish a junior pension for your child(ren). Many of our clients may wish to incorporate their children into their pension planning. As such, we often propose the use of multi-member pension arrangements – self-invested personal pensions (SIPP).
Pensions can be complex and because of the lack of education, the younger generation may not realise the power of funding their pensions in their younger years, the benefits of compound growth, or the benefit of having the right investment management. The below is an example of a simple compounding growth calculation.
Jane adds Sarah as a member of her SIPP soon after she is born. She contributes the annual maximum of £2,880, which becomes £3,600 a year after tax relief, and stops paying into it as soon as Sarah turns 18.
Assuming no further payments, and 4% growth after all charges, by the time Sarah is 65 the pension pot will be over £632,000 However, Jane only paid in £51,840 – meaning the total growth including tax relief is nearly 1,220%.
Please note, investment returns are not guaranteed and it is important to remember all investments are subject to investment risk – values can go down as well as up. Also, tax rules could change and tax treatment is dependent on your own circumstances.
MWISE
A final saving solution is MWise, an online investment service designed and offered by Mattioli Woods that offers a range of benefits to its users, with a focus on long-term investing.
Not all of our clients need complex arrangements or holistic financial advice. Often, they just want to take advantage of investing in a new tax year by opening an Individual Savings Account (ISA), or to save regularly by investing a fixed amount on a monthly basis. Through MWise, clients have the ability to open an Individual Savings Account, a Junior ISA, or a General Investment Account (GIA) in minutes following three simple steps.
MWise provides simplified advice and based on your answers it will recommend the right level of risk for you where investing is suitable. Like all investing, investments through MWise can rise and fall and should be held over the long term (5+ years).
Summary
Seeking help or knowing where to get help is essential – we all need a helping hand from time to time. There are pros and cons to everything, so do your research thoroughly, or speak to your financial adviser before making your final decision.
While discussions about our finances can be daunting, Mattioli Woods’ consultants are always available to provide support and guidance where we can, putting clients at the centre of what we do.
This article was written by Wealth Management Consultant, Justin Hunt.
**https://todayswillsandprobate.co.uk/the-cost-of-care-for-the-elderly-in-the-uk/
The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future. This article is for information purposes only. It is not intended to be an invitation to buy, or to act upon the comments made, and all investment decisions should be taken with advice, given appropriate knowledge of the investor’s circumstances.
Mattioli Woods plc is authorised and regulated by the Financial Conduct Authority.
Content correct at time of writing (12 March 2024)
