Time to give your personal finances a mid-life MOT?

As you get older your priorities change, and the way your personal finances are organised needs to change too. It’s time to give your financial planning an MOT.

Do you know how many pensions you have? And how much they are worth? Maybe you would like to help your children buy their first home but are not sure of the best way of doing this. And, with retirement just over the horizon, you may be worried that you won’t have enough income when you retire. 

Giving your personal finances a thorough overhaul can help you resolve these and other concerns and the best way of doing this is to consult a professional financial adviser. 

How we helped Mr Johnson get back on track

Mr Johnson*, an engineer in his early 50s, is divorced with two children. Last May he decided to book an appointment with one of our advisers. “Although I enjoy my job and want to continue working for as long as I can, I wanted to know that when I do eventually retire I will be OK financially. I wasn’t sure when I would get my state pension and had pensions from previous employers I had neglected, in addition to my pension from the utility company where I now work. Plus, I had a few random savings accounts that I had opened years ago and which didn’t seem to have increased in value.”

Jane, his financial adviser, asked Mr Johnson about his income and expenditure now, whether he was likely to inherit any money, plans for his retirement and other things, including whether he would like to help his children financially. 

“Mr Johnson is fortunate in that he will have paid off his mortgage in five years’ time. However, he has agreed to help his son with the cost of going through medical school and his outgoings will increase. I started by tracing Mr Johnson’s previous pensions. It turned out that he had three small pension pots from employers early on in his career, in addition to that of his current employer. It made sense to put them into a single fund, with the money invested for long-term growth in line with Mr Johnson’s risk profile.

Using savings to boost income

“His savings accounts were cash ISAs earning next-to-no interest, despite it being paid tax-free. We decided to keep three months’ worth of expenditure in the account paying the most interest as emergency money. We transferred the balance to a fund that generates regular tax-free income, in order to help pay for his son’s training. He can stop taking the income if he no longer needs it, for instance when he finishes paying off his mortgage, or if he inherits money from his parents.”

Ways of paying for long-term care for Mr Johnson’s parents

“I also asked Mr Johnson whether he would like me to review his parents’ finances and explain how they may be able to pay for long-term care (if it is needed) without having to sell their home or deplete their modest savings. He hadn’t realised that this might be possible. He mentioned this to his brother and parents who agreed that it would be a good idea at least to understand the options.”

I now know I can manage

Mr Johnson is happy that his finances are now arranged in a way that suits him. “Jane was fantastic. She listened and understood my concerns. I now know I can manage to help my son through his long training. And looking further ahead, my pensions should give me enough to live on without having to worry. Anything I end up getting from my parents will be a bonus.”

* We have changed real names to preserve anonymity. All financial details reflect the circumstances of the client.

The value of your investments, and the income you receive from them, can go down as well as up, so you could get back less than you put in. A pension is a long-term investment and inflation will reduce how much your income is worth over the years. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.