Why you do need long-term financial planning advice?

Now more than ever, people have a need for professional and impartial financial planning advice, as the majority of people do not make adequate provisions for their long-term financial needs. If you don’t agree with this sentiment have a read of the following statements.

1. Your family and dependents would have adequate income and be financially secure if you:

a. Died unexpectedly or;

b. Were diagnosed with a serious or life threatening illness resulting in prolonged medical treatment or;

c. Were unable to work for a prolonged period due to an injury, disability or mental condition.

2.  You and/or your employers are funding a pension plan and you are familiar with the key features and benefits.

Therefore  you:

a. Know whether it’s defined benefit – a final salary arrangement which will pay you a percentage of your final salary on retirement or a defined contribution arrangement where your pension is determined by the size of the fund at retirement;

b. You know what income your pension will provide in retirement based on what is being contributed and the growth in your fund over the period;

c. Are confident based on A+B that your standard of living will be maintained in retirement supplemented by a state benefits and other savings;

d. Know when you can retire and what options you have at retirement – how much you can take as a lump sum as opposed to how much you will receive as an income;

e. What your pension monies are invested in and why;

f. Are aware of the risks that your pension will not deliver your required level of income in retirement based on the investment strategy selected;

g. The tax relief available on your pension contributions and the tax treatment of your benefits on retirement

3.  You have a documented savings and investment plan to ensure you will have monies available for major life events and contingencies including:

a. Cost for children’s education;

b. Paying off a mortgage or loan;

c. Unexpected costs e.g. medical.

4. You have a comprehensive and up-to-date networth statement outlining all of your assets and liabilities and a personalised income statement and a plan for paying off any loans.

5. You cannot answer the above questions as you have a competent financial adviser who looks after your affairs.

 Viable plan

If your answer to the first four statements is an unequivocal yes, then it is very likely that you have a documented and viable long- term financial plan and the required products and services to meet your needs. Unless you are a financial adviser or someone with a high level of financial literacy and experience, then it is likely that this plan was prepared for you by an authorised financial adviser.

If your answer to the five statements is no then why is this the case? Our research and supporting anecdotal evidence highlights one important reason for this but not the most important. This is due to the impact of the protracted economic slowdown and austerity measures on most peoples’ income. When households are encountering financial pressure then financial planning requirements will be sacrificed to allow available income to be used to pay for day-to- day expenses. According to research undertaken by Friends First in 2013, 67% of households finances have experienced a reduction in income over the last 12 months, a rise of 15% over the previous years plus:

6.   A rise of 15% has seen their household income reduced over the past 12 months.

7.  63% of participants without a pension do not have one as they cannot afford it.

8.  20% of participant reduced pension contributions in the last 12 months.

9.   49% of these have stopped contributing altogether, a rise of almost 10% compared with the previous year.

10.  One in five were unable to meet all of their monthly financial commitments with mortgage commitments being the primary stress factor.

11. Almost half of participants without a pension would be encouraged to start one if they were automatically enrolled into a voluntary pension scheme.

 Informed decisions

If you do not have the income to pay for your financial planning needs then it is understandable that some of these will be sacrifice, but if you are an employee, there

are tax efficient ways for your employer to fund your pension and life cover and you should ensure that these option are fully explored with your financial adviser and employer.

However, the economic slowdown is not the main reason consumers have been reluctant to financially plan for the future, as before the economic slowdown government research from 2008 highlighted that less than 50% of  people had a private pension and this number included state employees, so when they are excluded, the number of uncovered private sector workers without a pension was over 60%. This is due to a factor we know as ‘short-termism’ where people spend money today (earned or borrowed) and fail to sacrifice short-term spending so they can divert income into saving for the long-term and in providing for contingencies. The outcome from failing to plan can be economic hardship for you and your dependents when you need income security most.

 Solution

This is why it is imperative that you engage with a professional adviser or broker who can provide you with a comprehensive overview of your financial planning. Even if you can’t afford to act on his/her recommendations, you are at least armed with the knowledge as to what you should do, when your income increases and your economic circumstances improve. The key objective in financial planning, as in many aspects of one’s life, is to make informed choices and ensure we have access to the best and most up-to-date information. If you do not have a financial plan, talk to a financial adviser today.

Anthony Curran is an advocate for your financial future who takes a holistic approach to your needs and goals. He will work collaboratively with you to define what success and financial independence mean to you and how best to achieve them. Anthony is well qualified to provide long-term support and guidance on a variety of financial challenges and will help you focus on what you can control. Defining your own financial freedom will help you be more comfortable about retirement and the possibilities of creating the life you want. Whether you are single, married, or raising a family, your approach to financial well-being now will shape your life for years to come. www.lowcostlifecover.ie

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