Financial planning is all about taking a holistic approach to your life and understanding how its different aspects connect and can bring you closer to your goals.
As such, it can be beneficial to separate some of these aspects to get a clear sense of how they come together in your financial plan.
For instance, understanding how your wealth, life expectancy, and health interact can help you identify potential challenges and build a financial plan that adapts as your circumstances change.
Read on to explore how these three key factors come together and what they mean for your financial planning.
1. Your wealth is influenced by factors both within and beyond your control
Your wealth refers to your net financial position and takes into account assets such as your property, savings, and investments, minus any debts or liabilities.
While it isn’t fixed, as your income and expenses can change and the value of certain assets can go up and down, much of your wealth is within your control. If you spend more and save less, it will go down, and vice versa.
However, there are also factors outside of your control that can influence your wealth, including:
- Inflation
- Market movements
- Changes in tax legislation
Small shifts in each of these can make a significant difference to your wealth over time, so it’s important to ensure you plan for such changes. This might include:
- Regularly reviewing your investment strategy to ensure you give your wealth the best chance of keeping pace with inflation
- Making full use of your tax-efficient allowances, such as ISAs and pensions
- Holding an emergency fund in cash so you’re less likely to need to sell investments during periods of market volatility
- Reviewing your financial plan as new legislation comes into place
While you can’t control the economy, financial markets, or government policy, you can control how you prepare for them.
2. Your life expectancy is a key determinant of your long-term wealth
People are living longer than ever before. While that’s undoubtedly positive, it also brings new financial challenges that are easy to overlook.
According to the Office for National Statistics, average life expectancy at birth was around 73 in 1981. Today it’s around 81, and by 2074 it’s projected to reach around 86.
A longer life means your retirement could last much longer than previous generations expected. For many people, it could easily span 30 years or more. That has important implications for your finances.
Even a relatively small increase in life expectancy can mean needing hundreds of thousands of pounds more to maintain the retirement lifestyle you want. This is sometimes known as ‘longevity risk’, which refers to the possibility of outliving your savings.
Living longer can also affect your legacy plans. The more of your wealth you spend during retirement, the less you may have left to pass on to loved ones.
So, it’s worth reviewing your financial plan regularly to ensure it reflects the possibility of a longer retirement. Depending on your circumstances, this could involve:
- Exploring annuity options to provide a guaranteed income
- Increasing your pension contributions while you’re still working
- Delaying retirement by a year or two
- Reviewing your savings and investment strategy
Of course, life doesn’t always follow expectations, and you may also die earlier than expected. In this instance, having an up-to-date estate plan can help ensure your assets are distributed tax-efficiently and according to your wishes.
No one knows exactly how long they’ll live. That’s why a good financial plan should be flexible enough to adapt to different outcomes, giving you confidence that whether your retirement lasts 15 years or 35, you’re well prepared for what the future holds.
3. Your health can influence your ability to make money and the amount you spend
While you may live well into your 90s, there’s no guarantee those years will all be spent in good health.
Reduced mobility, long-term illness, or the need for care can affect your finances because medical treatment, home adaptations, and support can all be expensive.
Equally, poor health could force you to retire earlier than expected. This would reduce the number of years you can earn and leave you with less time to build your retirement savings.
So, your health can influence both your ability to generate an income and the amount you may need to spend in later life.
Although it’s impossible to know what your future health needs will be, you can build flexibility into your financial plan to help prepare for different outcomes.
This may include:
- Purchasing an annuity
- Taking out appropriate protection
- Building an emergency fund to help cover unexpected expenses
- Reviewing your estate plan and ensuring Lasting Powers of Attorney are in place so your wishes can still be carried out if your health deteriorates
Planning for a range of possibilities can help ensure you’re better prepared if your circumstances change, giving you greater financial security and peace of mind throughout retirement.
Financial planning helps you prepare for changes to your health, wealth, and life expectancy.
Your wealth determines the resources available to you, your life expectancy influences how long those resources may need to last, and your health can affect both your income and your future expenses.
By considering all three together, a financial planner can help you build a plan that is both designed for the future you hope for and also prepared for the unexpected. This could mean making adjustments to your savings and investment strategy, protecting your income, or ensuring your estate is structured in line with your wishes.
Regular reviews can also help ensure your financial plan continues to reflect changes in your health, wealth, goals, and wider legislation.
Get in touch
Our team of independent financial advisers in Lewes can support you in building a plan that gives you the flexibility and confidence to make the most of your life, whatever the future brings.
To find out more, please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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