People often assume that serious financial planning at midlife only matters close to retirement. However, a sudden income shock or family change at this stage can unravel years of savings and limit future choices. So, how can you plan and prepare for financial challenges in midlife, while protecting your wealth at the same time? We explore ways to safeguard your money and stress-test your finances when you’re in your 40s, 50s and 60s.
Why financial planning in midlife matters
When we reach midlife, this is a pivotal moment to reassess our finances and future goals. It’s not just about retirement planning but being able to cope when unforeseen changes disrupt our well-thought-out plans, which may have been built over decades.
The UK government’s Midlife MOT encourages those aged 45 to 65 to regularly review their work, health and financial readiness. The idea is to increase awareness of working options, how to look after your physical and mental fitness, as well as pensions and debt management. There are a variety of factors that can affect us when we reach this age.
At Balance: Wealth Planning, we also encourage our clients to check in on their financial situation and goals at midlife. This enables us to ensure their financial plans are still relevant and resilient enough to provide a buffer for any challenges they might be navigating.
What are the financial challenges that can disrupt our plans?
Below are some of the most common scenarios that we can face in our 40s, 50s and 60s:
- Health issues – according to the Office of National Statistics, people’s health starts to decline in age groups over 40. Long-term sickness and chronic illnesses can create unexpected cash-flow gaps and financial strain for families.
- Divorce and relationship breakdowns – when a marriage, civil partnership or cohabiting relationship ends, household assets can be halved. This can have an impact on your retirement plans and pension provision, especially if pensions aren’t properly considered during a divorce settlement.
- Redundancy – whether voluntary or not, being made redundant comes with both career and financial risks. It can be difficult for middle-aged people to find employment or start a new career. Therefore, you must understand your statutory rights and redundancy pay entitlement, so you can help mitigate the impact.
- Supporting adult children – your adult children might be facing one of the above scenarios and need your help. You may have an adult child who has returned to live with you after university because they cannot afford to rent or buy their own place.
How to create a cash-flow plan
Cash-flow modelling is one of the top recommendations from both the government’s Midlife MOT and financial advisers. A cash-flow plan allows you to “stress-test” your finances against variable “what if” scenarios. Using sophisticated software, you can see different financial outcomes for job losses, market downturns, increased family support costs, and other factors. These insights enable you to plan ahead and make more informed decisions.
Building a financial buffer or an emergency fund might require an adjustment to your monthly budget. However, it is a proactive way to prepare for any potential financial shocks you might face in the future.
Diversify your investments
A well-diversified investment portfolio acts as a safety net during periods of volatility. Your money has less exposure to single-asset risks, and a “bucket strategy” can help to ensure you have capital available if your life changes. This approach puts money into investment “buckets” with different levels of risk, giving you varying access to cash.
Make sure you have regular portfolio reviews during midlife to identify any investment gaps. This can give you more time to adjust risk or rebalance your investment portfolio, so you can align with any changing short or long-term needs.
Review your insurance policies
Midlife is the ideal age to check whether you have an adequate level of insurance cover. Income protection, life cover, and critical illness policies can help to ensure you and your family have resilience against major setbacks.
It’s worth carrying out an “annual insurance audit” to check whether you have enough protection if you or your partner were to fall ill, die, or experience a sudden loss of income.
Speak to our financial planners if you think you are under-insured or have outdated cover.
Fixed fee financial advice, Nottingham and Lincoln
Stress-testing your financial plans before you retire ensures the “future you” isn’t derailed. So, whether you’re facing health issues, redundancy or a relationship breakdown, you can rest assured that you’ve protected your wealth.
At Balance: Wealth Planning, we can help you build financial buffers and protect your future wealth. Our financial planners will ensure your investments are well diversified and your long-term plans stay on track. And as we charge fixed fees for our financial advice, you’ll always have full transparency on the services we provide.
If you’re potentially facing a financial challenge and need advice, get in touch to speak to our financial planning team.
Sources:
https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandwellbeing/articles/generalhealthbyagesexanddeprivationenglandandwales/census2021
https://www.gov.uk/government/publications/planning-and-preparing-for-later-life/planning-and-preparing-for-later-life
https://www.gov.uk/redundancy-your-rights
https://www.gov.uk/government/news/dwp-launches-new-midlife-mot-website
