By Humaun Rashid, Independent Financial Adviser, Ascot Lloyd
The beginning of a new year is a great opportunity to take stock of your financial wellbeing and after all the turmoil of 2020, checking that your financial plan is up to date could give you some optimism as we head in to 2021.
Focusing on the things you can control is one way to feel reassured, particularly when it comes to your finances. By taking a fresh look at your plans there may be opportunities that your adviser can highlight to you because your circumstances or ideas are changing. Your adviser can help you explore different scenarios and the options you have.
As part of an annual review it is important to look again at your portfolio, your attitude to risk and ensure it matches your long-term objectives. During the pandemic we have seen short term market volatility. Understanding this and making sure your portfolio is still suitable to keep you on track is what your adviser can work through with you. Working together closely, you can look at what has changed in your life if anything; often there is nothing to do but you have the reassurance. However sometimes small adjustments can make a difference.
An example I had recently is where a client was taking an income from their investment portfolio to maintain their lifestyle. By carrying out a review and seeing that their outgoings were reduced due to not going away on holiday, they were able to reduce their income withdrawals; a very simple thing which meant they didn’t need to sell whilst the market was low. Other beneficial options might be to use cash deposits to supplement income and stop withdrawals completely for the short term.
But you don’t need to wait for your annual review. Your adviser will always be happy to discuss your plan and whether it needs adapting because your needs may very well be changing.
Here are some key questions you might want to think about at the moment.
Are you making the most out of your ISA tax free allowance?
An Individual Savings Account (ISA) is a tax efficient way to save funds as there are no tax or capital gains on income/gains generated within the ISA wrapper: tax benefits which are available to all UK tax residents.
You can save up to £20,000 per year, this is the maximum amount you can pay into an ISA between 6 April 2020 and 5 April 2021. If you don’t use your annual ISA allowance before the end of each tax year, you'll lose it.
The annual limit for contributions into a Junior ISAs is £9,000 (for 2020/21). Parents can pay into the Junior ISA up to the limit and what they pay in does not come out of their own £20,000 ISA allowance, as the Junior ISA belongs to the child.
For example, if you have only paid in £10,000 in your ISA in the 2020/21 financial year, you could still top it up by another £10,000 without being taxed.
Have your retirement plans changed due to Covid?
The trend towards active retirements and generally longer, healthier lives means that good financial planning is required to make sure you can do what you want to in retirement. However, since the coronavirus outbreak some of our clients have asked us ‘can I afford to retire early or indeed can I still afford to retire?’ COVID-19 has left many reassessing their work-life balance. For those who are heading towards retirement age, you may want to consider if it is worth the stress of carrying on during the turbulence of lockdowns and restricted trade. If you are close to retirement age, there may be ways to adjust your plan to allow you to finish a little earlier.
By working with clients to plan ahead and using tools that help calculate how much income you might need in different scenarios, we can show you the options you have and map out what you need, to help you achieve what you want to.
In the link below Aaron White, Ascot Lloyd Independent Financial Adviser talks about how the pandemic had a couple of his clients reassessing their retirement plans, with a video explaining the value of retirement planning.
Perhaps you need to make a Will?
Your Will lets you decide what happens to your money, property and possessions after you die and could reduce the time and the cost needed to deal with your estate.
These extraordinary times have prompted some of our clients to take another look at their Wills and estate planning. Getting your affairs in order and planning for the future can provide your family and friends with a clear path forward, no matter what lies ahead.
By talking to us we can review how the finances in your Will may be affected by inheritance tax and how to be as tax efficient as possible to mitigate unnecessary charges.
It is also commonly presumed that a Will is not required because everything will go to a spouse, but this is not always the case. For example, in England the laws of intestacy do, in the first instance, benefit a spouse; however, this is only up to an amount of £270,000. The remainder of the estate is divided in half between the spouse and any children of the deceased.
Many couples also believe that if they have lived together for several years this automatically creates a ‘common law marriage.’ This concept is not legally recognised under English law and your partner is not protected in these circumstances.
With many of us delaying marriage or deciding not to marry at all, it is extremely important to make a Will to benefit your partner. Unmarried partners do not receive anything under the intestacy rules. If you do not have a Will, in the absence of a surviving spouse or children, your estate would be divided between other family members.
Review your life insurance – is it adequate for your family needs?
The protection gap across the UK is estimated to be around £2trn and with recent events reminding us how the unexpected can have a devastating impact, now may be the perfect time to look at your protection policy. If you have had Life insurance for years, it might be time to reassess if it is still adequate for your needs.
All too often protection insurance is seen as an ‘add on’ when you make a big commitment like buying a house. But there’s more to protection and we need to shift how we see protection insurance for what it’s really there for.
Protection insurance is not there to just protect your house. It’s there to protect your life and your family. Peace of mind knowing your family’s lifestyle and standard of living can be maintained, no matter what, is invaluable. High income earners often feel that the assets and investments they have are enough, but by reviewing a client’s lifestyle and analysing their outgoings it often reveals a shortfall.
Do you need to re-build your emergency fund?
If 2020 has taught us anything, it’s how the unexpected can flip people’s finances overnight. If you dipped into savings, rather than saving more, how will you build that reserve back up in 2021?
It’s recommended you have at least 3 months’ worth of living expenses. But the more you can save the better and a bigger emergency fund can help ensure you’re able to handle a large financial shock.
Creating a separate savings account for your emergency fund, for example, so you’re not tempted to dip into it can be a real benefit. Keep in mind, it’s ideal the money is still easily accessed, so you don’t want to it be in a locked savings account or invested. A good way to stick to your savings plan is to set up a standing order to move money into a savings account each month.
Not only can an emergency fund help keep you afloat if your employment situation changes for the worse, it can also help you avoid having to liquidate portfolio assets at depressed prices during a rocky market.
This is especially important for retirees who rely on their investment portfolio income to cover regular spending. Ideally, you want three to six months of living expenses in a safe, liquid account.
There are so many reasons why going through a review of your plan and having a quick financial health-check can be a benefit. Clients are often surprised at how much has changed in their lives.
And let’s face it, it can while away the hours whilst there isn’t much else to do at this time.