Identifying your investment goals

What do you want your wealth to achieve for you? Most of us will have a variety of financial goals aimed to help us at different points in our lives. Having a strategy which takes these goals as a starting point, allows you to save more effectively and should help take the worry out of your money management.

Are your goals achievable?

Rather than simply viewing investing as getting the best possible return on your money at an unspecified date, goal-based investing aims to help people meet their personal and lifestyle aims, whatever they may be, in a straightforward and simple way. It helps you to see your investment journey more clearly, from buying a home to retirement, allowing you to identify the necessary steps and to understand how much you need to save to achieve them.

Thinking short-term and long-term

In order to adopt this approach, you need to think both short and long-term. Here are some examples of the goals that will typically feature in a lifetime plan: 

  • As a short-term goal, younger people are likely to want to save for a deposit to buy a home. This might include products offering the best interest rate, with the lowest risk, such as the Help-to-Buy ISA, or a cash version of the Lifetime ISA, both of which attract a 25% bonus from the government.
  • Starting a family might be the next expense and for this you may want to look at medium-term investments such as five-year bonds and seek out products which suit in terms of interest rate and ease of access.
  • An emergency fund can be needed at any time of your life and the requirement for immediate access makes traditional savings accounts or interest-paying current accounts an option.
  • It is never too early to start saving for your retirement and this is where the products you choose can become more complex. There are many ways to save, not least of which is your pension and the government-introduced auto-enrolment pension has helped many people into a workplace pension for the first time. But this should only be the start of your plan, you may want to think about additional saving into a pension scheme, specialist investments, or buy-to-let property. You will need to think how these investments are structured and what amount of risk you are prepared to accept – you may want your pension fund in safer investments in later years as protection from short-term volatility. There are many options and the route you take can have a significant impact on the quality of your retirement years.
  • Raising a family is a long and expensive journey and investing in fixed-term bonds can provide lumps of cash at appropriate points along the way. You may want to take advantage of your £20,000 per year tax-free ISA allowance or invest in a buy-to-let property which could double-up as accommodation for your child while at university.
  • If you’re a parent, you will want to look at how to manage Inheritance Tax to allow your children to inherit as much as possible from you. 

Working with an adviser

This may all seem complex, but with the help of a financial adviser it can start to make a lot of sense. Being clear about your goals and the time horizons in which you want to achieve them, is the first step in the process.  By gathering this personal information, a financial adviser can help you define the right level of savings, your attitude to risk and the most appropriate mix of funds to meet each of your needs, while providing a rational and disciplined investment approach to help you through market volatility. Your goals are likely to change over time, so it makes sense to have regular reviews of your investments to ensure they continue to meet your needs.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.

Developing a savings habit

It is a comfort to know that, should the unexpected happen, you have some money put aside to get yourself out of a short-term dilemma. It may be your car, your washing machine, your pet or your own health that requires an immediate amount of money spent on it. Whatever it is, it’s important to have a financial buffer and developing proper savings techniques will not only help you to build up a fighting fund for short-term emergencies, but will also encourage you to save regularly as much as you can afford, giving you the benefit of financial security and independence for the longer term.

Not everyone has the same financial goals and your idea of what you can save each month may be on a different scale to someone else. The fundamentals stay the same and here are a few basic rules to consider.

Encouraging saving

Even if the amount you are able to save each month is small, it is still important and if the saving is seen as part of a larger financial goal, it can be easier to find the motivation. A recent report from the BBC showed that technology can play a role in encouraging us all to save. Apps load-up pictures of savings goals, like a car, or a first home, to your mobile phone. Then, as you save more towards your goal, the image becomes clearer. If you withdraw money, the picture starts to disappear. Prize-based savings such as Premium Bonds can also make saving money more tangible.

Your pension

The number of UK workers saving into a pension scheme has increased since the government introduced auto-enrolment to workplace pension schemes. Saving for retirement is now much easier and as a result, pension scheme membership has been steadily nudged up to over ten million people. 

The minimum contribution to a workplace pension has recently gone up from 5% to 8% of your salary. You may be lucky and find that your employer has decided to pay the whole 8%. Legally however, they only need pay 3%, leaving you to pay the remaining 5%. While this is all good news, it is unlikely that contributions at this level will be enough to fund your ideal retirement, especially if you joined the scheme later in your career. You should not be lulled into thinking that your future prosperity is assured, but look at other ways to save and invest for your future.

If you are a member of a workplace pension scheme, it is worth checking whether your employer will match any increased contributions that you make. Contribution matching can help you build retirement benefits in your pot at a faster rate.

Paying off debts

Your priority might be to pay off your debts before you can think about saving and many people are deciding to do this while interest rates remain low. You may also consider that, conversely, low interest rates make saving less rewarding but don’t use this as an excuse to avoid saving altogether.  

Other ways to save

Whatever stage you are at in your career, it is worth developing a financial plan to which you can refer and adjust as your income changes. Making it a routine to check the plan, makes saving a part of your regular home admin and seeing the amount grow may even encourage you to save more. As your savings become more complex, you may want to consider working with a financial adviser who will be able to discuss your financial goals with you, suggest ways of broadening or protecting your investments and revisit your plan with you over the months and years. 

A pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend on the size of the fund at retirement, future interest rates and tax legislation. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. 

Is there a trend for longer term mortgage deals?

Choosing the length of time it will take you to pay off your mortgage is sometimes overlooked. Typically, our attention is focused on the type of mortgage: should you go for a repayment or interest only deal? A fixed rate or a variable rate? But deciding on the length, or term as it is known, is an important part of your budgeting.

How to choose your mortgage term

Traditionally mortgages have been for 25 years and that is still the standard term in the UK, but long term mortgages of up to 40 years are becoming popular and are readily available. This trend can be explained by the significant rise in house prices in recent years, which have not been matched by growth in wages. This means, particularly for first time buyers, it is hard to meet the affordability requirements demanded by lenders, so a mortgage of a longer term and with reduced monthly repayments can be a good option.

The benefits of a long term repayment mortgage are that the monthly payments are cheaper and interest rate rises will have less effect. However, the downside is that by the end of the term, the amount of interest that you will have paid will be far greater because the loan is repaid over a longer period. It will also take longer to build up equity in your property.

Who can take out a long term mortgage?

These longer term deals have come about to make monthly mortgage payments more affordable for first-time buyers, generally people in their twenties or thirties. Lenders usually want the term to end before you reach retirement, or their maximum age, so older borrowers can find it difficult to find a lender. It may be possible if you can show that your retirement income will be sufficient to make the payments for the duration of the term.

It is worth checking if your lender allows you to make overpayments without penalties, so that if you receive a windfall or if you are able to afford more each month, you can pay this off and reduce the length of the loan. This flexibility can be very useful over the life of these longer terms.

Our Lighthouse mortgage advisers can work alongside you to calculate how your monthly payments would vary with different terms. They will look at the impact on the overall cost of the loan. They will consider any potential changes in your circumstances and help you find a lender with a deal to suit your situation. As your mortgage approaches its final years we can advise if you can reduce the term, so that you’ll pay less interest and become mortgage free sooner.

Buying a home is a significant milestone and exploring all your options before you choose a mortgage provider and suitable product makes good sense.

Important Information: Your home may be repossessed if you do not keep up repayments on your mortgage.

Stay on top of your life insurance

Checking that you have sufficient life insurance may be something that you mean to do, but never quite get around to. Surely that policy you took out will be adequate? Don’t just hope for the best, rather get into the habit of making a regular review of your level of cover and check the detail so that you don’t find yourself underinsured.

Here are a few trigger points when it pays to review the level of your life insurance cover:

Marriage or civil partnership

When you enter a formal relationship with your partner, you may wish to share some or all of your financial responsibilities. Making sure that there are funds available to meet your financial commitments, should anything happen to either of you, should be part of your planning.

Moving up the property ladder

As you progress up the property ladder your mortgage is likely to increase. Remember to alter your life insurance to cover the larger amount of borrowing. 

It’s not just your life that needs insuring. 

As your family grows, so will your financial responsibilities. As well as checking that your existing level of life cover reflects this, it is also worth looking at other forms of cover such as accident, sickness and unemployment, critical illness or income protection.

Changes in lifestyle

Financial commitments can grow as your salary increases. You and your family may take more frequent and more expensive holidays and eat out more often. You may decide to put your children through private school. It is easy to become accustomed to this standard of living. This may be the time to increase the level of cover so that your family’s standard of living isn’t compromised should the worst happen to you.

A new job

Some employers will offer life insurance as part of the package while others don’t. It is important not to assume that you are automatically covered when you change to a new job. It may now be up to you to insure your life.

Enjoy a relaxing retirement

As retirement beckons, remember to consider Inheritance Tax planning. A protection policy providing a payout on death will help to cover tax liabilities on your estate, if written in a suitable trust.

Financial security means safeguarding your wealth against the unforeseeable and protecting  yourself and your family in a worst-case situation. Keeping a regular check on your cover isn’t an arduous task and you may be thankful that you did. It does not necessarily mean paying a higher premium – there may be a more cost-effective policy available that suits your needs. Talking with one of our advisers will give you the peace of mind that you have affordable and sufficient cover.

Important Information: Some protection products, such as Whole of Life or Long-Term Care, may include an investment element. The value of your investments can go down as well as up, so you could get back less than you invested. If you stop paying premiums your cover may end.

Find out more about our protection and insurance products here https://www.lighthousegroup.plc.uk/services/protection-insurance/ or call 0800 085 8590 to book a complimentary initial consultation.

 

A significant 18th birthday present

If you have a new baby, saving for their 18th birthday may not be at the top of your to-do list, but with generational wealth planning becoming more topical and the advantages of starting early more widely recognised, it may be worth moving it up there.

Parents and grandparents often wish to start a savings account for a new member of the family, typically in an account specifically badged for children, a savings account of their own which is ringfenced for the child, or in a Junior ISA (known as a JISA).

The JISA was introduced in 2011 and since then the number of applications has grown steadily each year. HMRC figures have revealed the number of accounts increasing from 794,000 in the 2016–17 tax year, to 907,000 during the 2017–18 tax year*. There are two types: the cash Junior ISA and the stocks and shares Junior ISA. 

 A child can have one or both types and in the 2019 to 2020 tax year, the savings limit is £4,368. The main advantage of the JISA over a regular savings account is the ability to save money tax-free and long-term. The tax exemption may also be attractive to parents who have used all the tax-free savings allowances of their own in an adult ISA.

Another appeal may be the money being locked in until the child is 18, stopping either the child or parent, dipping into it. When the child reaches 16 they can become the registered contact for their JISA but cannot take any money out of it until they turn 18.

Some cash JISAs also currently offer better rates of interest than a cash ISA**. Additionally, there is the opportunity for 16 and 17-year-olds already holding a JISA to open a cash ISA as well giving them the option to save up to £24,368 each year for those two years.

Start saving as soon as you can

The accumulated interest that builds up over 18 years rather than say 15 or 10 makes a big difference to the amount available to the 18-year-old so it pays to start saving as soon as possible.

Cash or stocks and shares JISA?

This depends upon when you start saving. History shows us that long-term investments in the stock market produce a better return than relying on the interest paid in a cash account. So, if you start saving into a JISA soon after the birth of your child, and they wish to take the money out at the age of 18, there is time to weather a downturn or two in the stock market, plus hopefully enjoy some significant growth. However, if you leave it until later to start, a more cautious approach may be appropriate

Investing for your children’s future is key to your wealth management strategy and there are tax incentives to be explored. To find out more about our savings and investment services go to https://www.lighthousegroup.plc.uk/services/savings-investment/ or call 0800 085 8590 to book a complimentary initial consultation.

Important Information The value of your investments can go down as well as up, so you could get back less than you invested.

Life after work – Preparing for retirement

Getting the most from your retirement requires careful planning, both in terms of what you will do with your time, as well as how you will afford it. It is a complete change of lifestyle which some take to easily, but for others it is a harder adjustment. Holidays may give you a taste of having more free time, but why not use them as an opportunity to really think about structuring the years ahead?

How can I prepare for a comfortable retirement?

Preparing for retirement should start when you start working. With auto-enrolment into workplace pensions now standard, more of the working population have a pension. But that will not necessarily be enough to fund your retirement and shouldn’t stop you looking at other ways of saving and seeking out the most tax-efficient ways of accumulating wealth. 

As you go through your working life your financial goals change, as does your discretionary income and a priority should be to start a financial plan that lists your assets such as pensions (state and private), ISAS, savings and property and predicts how much income they will provide for your retirement. This can be complex and it is becoming usual to enlist the help of a financial adviser who will work with you over a number of years to help you plan and come up with solutions to ensure you receive your full potential retirement income.

How will I spend my time?

As well as planning your finances, think about how you want to spend your time. After a busy career, free time can be daunting for some people, so think about hobbies you might want to pursue. Remember that you will need to maintain social contact and keep up with new technologies and a new circle of friends with similar lifestyles to yours can help with both these things. You may plan to explore a new environment by moving house or travelling. Don’t let the sudden change come as a shock – retirement can be emotionally upsetting and needs as much thought as your finances.

Can I afford to do the things I have always dreamt of?

It is one thing to decide when you want to retire and what you want to do, another to be able to afford it. A financial adviser can help you work out if the two are compatible. If you find there is a shortfall when you compare your expected income against expenses, there are some options available to you. You may choose to work longer – retiring later means that your pension pot won’t need to last so long and you may get higher monthly payments. Take a look at all your monthly expenses and cull any unnecessary subscriptions and memberships.  

You might want to look at other ways of organising your retirement income. Since 2015 there has been greater freedom in how you can take your pension funds, including as a lump sum.  This might suit a specific retirement goal, but must not be done without first taking financial advice and you should be very careful of scams which offer unsolicited advice on how to invest your money. 

There are many ways to structure your retirement income and it is never too soon to start planning it. Important Information: A Pension is a long-term investment. The fund value may fluctuate and can go down. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.

Life protection and insurance – The unexpected can happen

When your family is in reasonable health, you and your partner both have good jobs, your mortgage is being paid off and you are even managing to save every month, you have every reason to congratulate yourself. You may even have a couple of life policies, or a workplace death-in-service scheme that makes you think you have every worst-case scenario covered.

But have you ever really checked that it is enough? Have you even discussed the repercussions of serious illness or death with your partner? Have you thought about the impact of losing your job or simply moving to a new job? While times are good it is difficult to imagine that this might not always be the case and it’s hard to make life insurance a priority as you would prioritise travel insurance when going on holiday. 

Reasons not to address the issue of life protection and insurance include a disinclination to talk about death or a life-changing condition, a lack of understanding of this sort of insurance, a feeling that you won’t personally benefit, you can’t afford it or that you already have sufficient savings.

The sad reality is that bad things can happen and illness or redundancy might mean that mortgage payments become a problem or the long-term care for a member of your family quickly erodes your savings. 

Getting professional advice from someone who can see the big picture is a good idea. While you may be able to do your own research and buy a policy online at an attractive rate, it is hard to know if this is going to be enough and if you have covered all eventualities. At Lighthouse we have a team of protection and insurance advisers who can help you with this. We can introduce you to an expert who will assess your current situation, discuss your future goals and point out the implications of events such as a critical illness and how it could affect your ability to look after your family. They will review your finances and then suggest affordable and appropriate protection options.

We know it isn’t much fun as a topic for discussion, but consider the peace of mind you will have from knowing that you have safeguards in place should the worst happen and appreciating that you can afford to manage it.

Important Information: Some protection products, such as Whole of Life or Long-Term Care, may include an investment element. The value of your investments can go down as well as up, so you could get back less than you invested.

Find out more about our protection and insurance products here https://www.lighthousegroup.plc.uk/services/protection-insurance/ or call 0800 085 8590 to book a complimentary initial consultation.

 

 

 

Is equity release a conventional way to fund retirement?

Is equity release a conventional way to fund retirement?

Just a few years ago the answer to this question would probably have been no, but with equity release products now some of the most highly regulated in the UK and with the country’s ageing population looking for ways to raise money in later life it is not surprising that the industry is growing in terms of the number of products.

The Autumn 2018 Market Report from the Equity Release Council (ERC), highlighted that the equity release sector has doubled in size since the first half of 2016 and that property is now recognised by some as being vital for their retirement. As the value of property has increased in parts of the country, so retirement ages have also risen creating a need to release cash from the property in order to fund anything from home improvements, debts, supplement retirement income, or to support children and grandchildren as they buy homes of their own.

How can I release money from my home?

As long as you are over 55 and own your home, there are two ways you can release money without having to sell your property or make monthly repayments. The first is a lifetime mortgage which allows you to borrow money against the value of your home, which is repayable with interest when you die or move into long term care. The second is known as a home reversion plan and it gives you access to some or all of the value of your home, allowing you to live in the property rent-free for the rest of your life.

If you are at this stage in life and find yourself property-rich but cash-poor, it may make sense to explore these options. It is a big decision to make and not one you should make alone. Talking to one of our professional financial advisers will give you the assurance that you are receiving all relevant information and industry safeguards. Your adviser will thoroughly review your financial circumstances and be able to advise whether equity release is suitable for you. If it is, they will discuss the most appropriate way of releasing your equity and address any concerns you may have such as Inheritance Tax implications. 

Important Information: Equity release may involve a lifetime mortgage or a home reversion plan. To understand the features and risks, ask for a personalised illustration. Equity release may not be right for everyone. It may affect your entitlement to state benefits and will reduce the value of your estate. Check that this mortgage will meet your needs if you want to move or sell your home or want your family to inherit it. If you are in any doubt, seek specialist advice.

Lighthouse is a member of the ERC and has a team of specially qualified Equity Release advisers.

Find out more here Equity-Release or call 0800 085 8590 to book a complimentary initial consultation.

Auto Enrolment increase in contributions

Don’t automatically stop saving

Since 2012 an additional 10 million people in the UK have started saving into a pension via their automatic enrolment workplace pension scheme. This is thanks to the Government initiative to make it compulsory for employers to contribute into a pension plan for all their employees earning above the threshold figure of £6,032. The minimum contributions of employers and employees will rise on 6 April 2019. Both sound like good news and they are but they shouldn’t stop you thinking about your retirement and working out if you need to save more.

The facts

The minimum contribution to a workplace pension has gone up from 5% to 8% of your salary. You may be lucky and find that your employer has decided to pay the whole 8%. Legally, however, they only need pay 3%, leaving you to pay the outstanding 5%. This is calculated by combining the total of your regular wages, commission, overtime, sick pay and maternity/paternity pay. It is taken from your pay before it is taxed so you effectively get full tax relief on the sum.

You are automatically enrolled if you are at least 22 and under the State Pension age and are working in the UK under a full-time, part-time, permanent or temporary employment contract. If, however, you are self-employed you will not have access to automatic enrolment into a pension scheme and while the Government is considering plans to help this group save for retirement, there is nothing formal in place yet. If you are self-employed it is important to take full control of your financial planning.

But will it be enough?

Even if you have a workplace or an independently sourced pension don’t assume it will be sufficient to see you through retirement. We have a longer life expectancy and the State Pension age has increased with no guarantee that it won’t again. And you shouldn’t presume that your state pension will be sufficient to live on.

The age at which you start to contribute to a plan makes a difference, if you start your saving early in your working life the number of years plus the accumulated interest will provide you with a healthier sum than if you are only auto enrolled towards the end of your career.

It literally does pay to take an active interest in how your pension is performing and by seeking professional financial advice.

CEO Malcolm Streatfield discusses a positive year for Lighthouse Group

CEO Malcolm Streatfield talks to DirectorsTalk about its final results for the year ended Dec 2018. Malcolm talks us through the year highlights, how LFA is progressing and plans for growth, Tavistock progression, the rationale behind the auto-enrollment business disposal and 2019 progress.

A Positive Year for Lighthouse Group from DirectorsTalk on Vimeo.

Lighthouse Group has been listed on AIM since 2000 as an integrated financial services company for investors, coupled with significant scale in terms of distribution through financial advisers and wealth managers and its fully diversified business model.

As one of the UK’s largest autonomous financial advice and wealth management groups, Lighthouse provides a comprehensive range of services to businesses and individuals and is retained by most of the major trades unions and other affinity groups to advise their combined memberships of over 6 million members.

The Group aims to increase its relationships with, and the benefits it derives from, its affinity group and professional partners.

In addition to a wide range of financial advice, the Group has developed innovative products to meet th specific needs of its retail and corporate customers.

Lighthouse operates from its headquarters in London as well as having principal operating offices in Stockport and Woodingdean, near Brighton.