All this week, Morningstar is supporting Financial Planning Week, the Institute of Financial Planning's national initiative to promote successful financial planning. Day four focuses on those who have reached or are approaching a crossroads in life whereby they have some rather large choices to make and would likely benefit from giving their finances a rethink, perhaps because they are finally free of dependents or because retirement is imminent.
Results from the IFP’s Financial Planning Week survey, compiled by YouGov in association with NS&I reveal that those in the 55-years and above age bracket are the most confident of those surveyed when it comes to investing in UK equities, presumably as a result of having survived the previous recession.
Such confidence in the more mature generations should reassure the risk-averse and investment-phobics, says Alan Dick, Certified Financial Planner with Forty Two Wealth Management LLP. “The fact that older investors have been through several recessions and market crashes, including the devastation of 1973/74, the crash of 1987, 1992 and the bursting of the dot.com bubble, and still know that investing in equities works in the long run should be encouraging to younger investors.”
What is slightly concerning, however, is that although this age group holds the most confidence in investing in UK equities, it is still only 22% of the 55+ bracket, which means that 78% aren’t particularly confident in investing in the stock market.
Morningstar Director of Personal Finance Christine Benz offers tips for those wishing to get back into the market—click here to watch her video—and Morningstar fund analyst David Kathman provides useful insights into what to look for following the first-half rally in this article.
Following the economic turbulence of the past two years, the recession has unfortunately taken its toll: 50% of those above 55 years of age say their household financial situation has worsened over the past six months, probably in part due to lower interest on savings. Despite this, our more mature respondents remain sanguine: 30% claim to still be satisfied with their current financial situation.
What is worrying, however, is that while the survey revealed younger generations plan to budget and save in order to improve their financial situation, 45-54 year-olds are the most likely to ignore their problems. A huge 30% claim to be pinning their hopes on winning the lottery as a means of improving their financial future.
Perhaps the events of the past year or so have created an air of desperation amongst those who were already struggling to keep up with the demands of family, career and saving for retirement as we all know that the odds of winning the lottery are so low as to be virtually non-existent: "It could be you," Camelot says, but it’s almost certainly not.
“Anyone relying on the lottery is accepting that they will never lead the life they want,” Dick says, adding that this should be a wake up call to start planning what you want your life to look like and start working towards achieving it. “Unfortunately, we can't all live like the Beckhams—part of good financial planning is managing expectations.”
Dick continues: “If we know at an early stage that we aren't going to retire at age 50 and live the life of our dreams but could retire at 60 and live a slightly more modest but still comfortable lifestyle, that should actually be a powerful motivation rather than the emotional drain of always feeling we are never making any progress.”
Read this article for a discussion on how much is enough in retirement as Morningstar’s John Rekenthaler assesses the varying degree of lifestyle demands post-working life.
While those that are still a decade or so away from retirement are looking to the lotto, our older respondents appear to be a little wiser: those in the 55-years and above age bracket turn out to be the most dedicated savers of all the age groups surveyed, with the majority (53%) saving for retirement followed by 29% saving for a contingency. Similarly, the greatest proportion of 45-54 year-olds are also saving for retirement, though the gap between retirement and contingency saving is narrower: 34% for retirement and 30% for contingencies.
The 55+ group also comes out top when it comes to having a financial plan and regularly reviewing it: 24%—the greatest proportion of any age group—claim to do so. Setting up and reviewing financial goals is the key to successful financial planning, but it’s also important to remember that, should the unthinkable happen, your finances need to be decipherable to others. This article tells you what your spouse or family must know about your finances in order to deal with them in your absence.
Anyone with even the slightest aptitude for mathematics will, of course, have realised that our survey numbers show that three out of four respondents are failing to actively plan their finances, meaning the financial services industry still has a lot to do to improve on this situation. “Realistically the figures should be the other way round. The fact that 24% is actually the highest proportion of any age group is also worrying as younger age groups are clearly not being engaged by the financial services industry,” Dick comments. “It is essential that more people of younger ages are turned on to the benefits of taking control of their financial affairs.”
He also makes an interesting point about the future of the profession and the need to deal with increasing demand, pointing out that it is important that the profile of financial planning is raised as a truly professional career choice for the very best graduate talent if there are to be enough quality advisers to serve the (rising) needs of the population.
Key elements of reassessing your financial situation and goals include preparing and planning for retirement, working out or adjusting financial goals, managing expectations, managing portfolios, and writing/updating last will and testament. Should you need help in any of these matters, this article can help you decide what sort of advice you might want to seek and how to find it. For help in finding a financial planner, take a look at this Web site.
The IFP’s Financial Planning Week survey was compiled by YouGov in association with NS&I. All survey figures, unless otherwise stated, are from YouGov. Total sample size was 1,896 adults. Fieldwork was undertaken between 29 June-2 July 2009. The survey was carried out online. The figures are unweighted. Regional breakdowns and variations are available upon request.
