Life cycle financial planning involves the identification and management of the financial requirements and difficulties that occur at various life periods, starting from childhood and extending beyond retirement age. By comprehending and planning for the distinct financial factors associated with each period of life, clients can make informed decisions to strive for a financially stable future.
The life cycle planning process consists of five distinct stages:
- Adolescence (13-17 years)
- Emerging adulthood (18-25 years)
- Establishing a family (ages 26-45)
- Considering retirement between the ages of 45 and 64,
- Retirement achieved at the age of 65 or older.
Additionally, there exists an alternative notion in which the financial life cycle can be segmented into three distinct phases, which are spread out among the five stages of the life cycle.
Equity funds:
Wealth accumulation refers to the process in which clients diligently engage in daily effort to provide a solid foundation for their future legacy. This stage primarily focuses on financial preservation and strategic preparation for the future, making it an opportune time to commence retirement planning.
Wealth preservation:
Now that the necessary preparations have been completed, it is time to ensure the security and protection of one's assets. This is the stage when an individual starts contemplating retirement planning after years of accumulating wealth during their working life. At this point, your clients engage in a process of reassessing their investments and determining their desired outcomes post-retirement.
Wealth distribution:
The ultimate phase is when the accumulated savings and investments will ultimately yield returns. Typically, this occurs during individuals' retirement phase, making it crucial for your clients to finalise preparations for matters such as estate planning and end-of-life planning.
Elements that Lead to Success
Invest early:
The sooner you start to put your money to work, the better your odds of success. The power of compounding interest is profound. Small, consistent investments during the early stages of life can lead to impressive long-term appreciation.
Keep learning:
Stay updated on financial trends and tools to seize both investment and spending opportunities. Learning new tricksâand plain old keeping your eyes and ears openâequips you to make informed financial decisions.
Reassess risk:
As life progresses, risk appetite tends to diminish. For one thing, the investments have less and less time to recover from setbacks. As a result, you should reassess your risk tolerance and periodically adjust your portfolioâs level of risk accordingly.
Manage debt:
A cautious approach to debt, especially during your family-and-foundations stage, can prevent financial difficulties. And in general, paying down debt is always a good idea.
Plan proactively:
While retirement might seem a fantastically long way off during the early stages of your career, proactive planning can ensure a seamless and comfortable transition when the time finally comes to call it a career.
Consult regularly:
As you experience major life events - marriage, parenthood, career transitions - regular consultations with a financial advisor can provide clarity and direction. Embark on your financial journey with confidence, yet make sure that expert guidance is available when you need it.