Financial planning

Don't Look Back in anger

For those born in the 80s and raised in the 90s the world has changed a lot. Britpop dominated the UK music scene and the current England football manager was playing in the England team on the verge of missing a crucial penalty against Germany.

Andrew Goulter
Wealth Management Consultant
7 July 2022
4 minutes

Society was terrified that the lads and ‘ladettes’ were bringing culture down and would spell the end for a generation.

Jump to now and Britpop is only part of novelty festival acts, the England football team still have not won anything, and the UK’s drinking culture seems to be in flux with a younger generation less interested in boozing while we are all more attached to our phones1.

Getting past 30, in my experience, leads to people looking to settle down. Moving on from your twenties where sleep was something other people did, and the hangovers did not seem to last as long.

By no means does this cover everyone but in my client base there is a drive to put down roots often coinciding with settling down with a long-term partner and building a family.

These matters can become entwined especially in terms of affordability and sometimes joining

forces seems to be the only way to get on the property ladder.

Stay Together (Suede)

In 2019, 50.4% of the UK population were in a legally recognised partnership and the trend appears for new partnerships to be falling2.

While it is assumed that divorce rates are rising , in 2020 the number of divorces fell by 4.5%3.

Although the structure of civil partnership or marriage provides some inherent protections for both parties, for those outside this structure it can lead to stress and anxiety regarding family finances.

This means that prenuptial agreements, in advance of marriage, or cohabitation agreements, for those choosing not to proceed down that path, are becoming more and more essential.

Both of these arrangements have strict criteria that needs to be met to be effectively enforceable in England and Wales4.

However, they are jumping off points for a relationship that allows individuals to understand where they are moving in the long-term. Do not get me wrong, it is not a fun conversation but it is one that can provide protection for both parties as well as their children.

 

Park life! (Blur)

Moving into your 30s, especially in an employee driven market, will see a drive to leverage workplace experience to increase earnings. From this the opportunity arises to get out of the rental market and into owning a property.

While the switch from paying someone else’s mortgage to paying your own makes sense, alongside the long-term capital growth prospects of property, it is not without risks.

Someone in their 30’s has likely never truly experienced a high interest rate environment compared to those in the past. If this does occur then homeowners may find issues with affordability and price variation, potentially even a chance to fall into negative equity if there is a value crash. This can be a real issue for those over extended.

For those looking to get on the property market Lifetime ISAs are essential. Very few investments provide you with an immediate 25% uplift in value and the ability to put this towards your first-time purchase is a real difference maker. This gives a couple putting £4,000 aside each year the buying power of £10,000 for purchasing their first home.
 


Babies! (Pulp)
It is true that a mortgage can absorb a large amount of your wealth however, it is maybe children who represent the largest cost over time.5

I nearly cried the first time I realised that nursery fees for a month cost more than my mortgage payment and I am probably not alone in that.6

Taking advantage of the tax allowances available to you are key. In a recent conversation with a friend, they were not aware of tax-free childcare nor the ability to apply for funded hours7. These are easy to apply for and something I would recommend everyone takes advantage of.

It is important to start taking care of yourself and the family now by putting aside a little cash to help develop the all-important emergency fund to fall back on. As well as considering putting in place life insurances and protection should the worst happen to support the family.

 

Live Forever (Oasis)
Charging around after work or children can often focus eyes on the now and take them off the future.

In between job roles, and juggling life, a pension can be left behind and not working for the long-term picture.

For someone born in 1985 they have probably accrued some pension since at least 2012 when auto enrolment was introduced.

Based on 10 years of accrual at the national average wage of £25,971 and a 5% growth rate let’s say they have put together circa £20,000 of pension.

If we then project forward for 23 years until they reach the age of 60 and in this time if they are:

  • continuing to earn the national average wage
  • contributing 8% per annum to a pension in line with auto enrolment
  • targeting a 5% investment return

their pension would be worth £151,784 in total.

This alone will not represent enough of a fund to survive in retirement as, in the current environment, costs can represent circa £26,000 per annum for a couple8.

This doesn’t take into account the effect on inflation on living costs which over time will likely increase that final income requirement. Therefore advice, planning and understanding is key.

 

Alright (Supergrass)

We all hope to remain ‘young and run green’ so getting the above planned in good time makes a big difference for the long term. These steps cover protecting what you have as well as growing what you are getting.

Taking professional advice to build a strategy can save time, costs and worry while making sure that your money is working for you while you are making the best of life.

There is always time for a coffee and conversation.

 

[1] https://researchbriefings.files.parliament.uk/documents/CBP-7626/CBP-7626.pdf

[2] https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/bulletins/populationestimatesbymaritalstatusandlivingarrangements/2019#:~:text=Married%20or%20civil%20partnered%20remained,aged%2070%20years%20and%20over

[3] https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/divorce

[4] https://www.footanstey.com/our-insights/articles-news/guide-to-prenuptial-agreements-in-the-uk/

[5] https://cpag.org.uk/news-blogs/news-listings/rising-cost-child

[6] https://www.huffingtonpost.co.uk/entry/childcare-is-costing-families-more-than-their-rent-or-mortgage_uk_623c5209e4b046c938e5fb3e

[7] https://www.gov.uk/tax-free-childcar

[8] https://www.which.co.uk/money/pensions-and-retirement/starting-to-plan-your-retirement/how-much-will-you-need-to-retire-atu0z9k0lw3p

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