The Lifecycle Financial Planning Approach

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The lifecycle financial planning approach places all your financial activity into distinct time periods, or stages, with retirement acting as the final phase in the financial lifecycle.

This approach is powerful as it provides you a clear framework for evaluating different decisions. Here are the 5 standard financial life stages encompassed in the lifecycle approach. Keep in mind the stated age ranges are merely guideposts, some of you will pass through stages more quickly or more slowly depending on your circumstances.

1. Early Career
Ranging in age from 25 to 35 years old, early career phase adults are starting to build a foundation for a strong financial future. You may be planning to start a family, if you have not done so already. If you do not yet own a home, you might be saving for one. At this stage, keeping income in step with expenses is a struggle, but it’s important to lay the groundwork for retirement saving now.

2. Career Development
From ages 35 to 50, earnings rise, but so do financial demands. Keeping expenses in line with income is a challenge in this stage. Many families are concerned with covering college costs and paying for ongoing expenses while also increasing the pace of saving for retirement.

3. Peak Accumulation
In this stage, from the early 50s into the early 60s, you typically reach your maximum income level. It may be a time of relative freedom as your children have graduated from college. Without college tuition and with lower expenses, you can accelerate savings rates to position yourself for a more secure retirement.

4. Pre-Retirement
About 3 to 6 years before winding down professionally, you should start restructuring assets to reduce risk and increase income. By this point, mortgages are usually paid and children are independent. This is the time to evaluate retirement income options and the tax consequences of investments.

5. Retirement
The final financial lifecycle phase occurs for people in their mid-60s and beyond. Once you stop working, your focus shifts from wealth accumulation to income preservation. In this stage, the goal is to preserve your purchasing power and enjoy your desired lifestyle. Estate planning and legacy considerations also gain importance as you age.

As we transition through each life stage, we should adjust our focus each step of the way to ensure our financial plan remains appropriate for our risk tolerance, age and goals.

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Should You Make A Will?

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A will is a legally enforceable declaration of how a person wishes his/her assets to be distributed after death. In a will, a person can also recommend a guardian for his/her children. A well-constructed will ensures that your wishes are carried out, and it can make things simpler and easier for your heirs.

When a person (non-Muslim) dies without leaving a will, he is said to have died intestate. Sometimes, even if a person has a will (died testate), the will may not be properly drafted and certain assets are left out of the will. These remaining assets (net-estate) will fall into intestacy.

Intestate Succession Act (Chapter 146), the mother of all estate planning laws in Singapore, applies in these situations. According to the law, regardless what the deceased may have wished, the net-estate will be distributed as below:

Who survives the deceased:

Assets distributed to:

Spouse (No issue or parents)

Spouse – 100%

Spouse & issue

Spouse – 50%

Issue – 50% in equal portions

Issue  (No spouse)

Issue – 100% in equal portions

Spouse & parents (No issue)

Spouse – 50%

Parents – 50% in equal portions

Parents (No spouse or issue)

Parents – 100% in equal portions

Siblings (No spouse, issue or parents)

Siblings – 100% in equal portions

Grandparents (No spouse, issue, parents or siblings)

Grandparents – 100% in equal portions

Uncles & aunts (No spouse, issue, parents, siblings, children of siblings or grandparents)

Uncles & aunts – 100% in equal portions

None of the above

Government – 100%

 

Even if the consequences may seem unfair and undesirable, if you do not have a will, the law decides how your assets are distributed. There are many cases where family members and relatives have fallen out over the distribution of the deceased’s assets. Your hard-earned money may not be given to people whom you truly care for and are in need of money. Worst, it may end up with someone whom you dislike. Creating a valid and up-to-date will is of great importance in estate planning.