The Life Cycle of Financial Planning
Advisers work with clients to determine their goals and devise strategies to achieve them. In doing so, it is useful to assign goals to different stages within the client’s financial life cycle so that priorities and focus of each life stage can be made clear for the client.
By using the “life cycle financial planning approach”, advisers can help clients maintain their focus because goals and decisions in one life stage can impact on the decisions and outcome of subsequent stages and ultimately the client’s living standards in retirement.
Each stage of the financial life cycle and typical priorities can be represented as follows:
Career starters (age 20-25) – key focus being budgeting, ensuring income can cover expenses and emergency funds are available to pay for unexpected expenses.
Young accumulators (age 25-35) – start implementing wealth accumulation strategies (savings and investments) as well as risk management strategies such as life insurance.
Family starters (age 35-45) – income and expenses are expected to increase, e.g. paying for own home and education costs, ensure any debt is used and managed prudently, top up life insurance.
Peak earners (age 45-55) – commence pre-retirement planning and retirement funding (e.g. by increasing contribution to superannuation), reduce debt and continue to accumulate assets.
Retirement planners (age 55-65) – budget for retirement (develop a clear view of what is desired and achievable in retirement), consider business succession, estate planning.
Retirees (age 65+) – ensure retirement funding is sufficient, manage longevity risk, estate planning, wealth transfer and long term care.
Of course, each person’s circumstances are different and financial advice should be tailored to suit. Furthermore, effective tax planning is critical at each life stage and should form part of the discussion with the financial adviser.
A good financial adviser can add value at each stage of life cycle financial planning by:
Recommending and implementing strategies and products to help their clients achieve their objectives.
Educating their clients financially so that they can understand the potential risks and returns from adopting the strategies.
Helping their clients transition financially from one stage to the next, such as moving from working full time to working part time before retirement.
Reviewing the client’s wealth management strategies regularly to ensure they remain effective or make changes necessary to adapt to the clients’ changing circumstances. These changes may include changes in family situation, financial position and health conditions.
If you wish to know how we can help you with your financial planning needs in your financial planning life cycle, contact us at admin@japhiawealth.com.au for a one-hour free initial consultation.
GENERAL ADVICE WARNING: The above is general advice only and does not take into account your personal circumstances or objectives. You should seek your own independent financial and tax advice to ascertain whether and how the above applies to your particular situation and whether it is likely to meet your objectives, prior to making any financial and investment decisions.