Big life events that can change your finances
Life inevitably involves twists and turns, with some that are expected while others may be entirely unplanned. But whatever your situation, chances are your financial needs may change over time.
Here, we consider five major life events, and the basic financial considerations each stage may bring.
Marriage
It’s easy to forget about the financial implications of getting hitched amid the excitement of wedding planning and starting married life. However, moving from single to married status is a time to put some financial safeguards in place.
With plenty of us getting married later in life, you may want to consider drawing up a pre-nuptial agreement before the big day. While this isn’t the most romantic step, it could be financially wise. This agreement states what assets you have when you enter the marriage, and helps determine the financial outcome in the event of a split.
When you marry, any existing will you’ve made becomes invalid. You’ll need to make a new one to clarify what will happen to your pensions, investments and other assets should you pass away. Otherwise, your estate will be subject to the law of intestacy. Typically, this means your assets will pass to your spouse or civil partner, but this isn’t always the case.
Having a baby
Starting a family is an exciting time but it’s also important that you can financially protect your family.
If you or your partner were to suddenly pass away, you’d want some financial security in place that could pay off any outstanding debts. This is where life insurance could help. Life insurance, also known as life cover or life assurance, is a way to help protect your loved ones financially if you were to die during the length of your policy. When you take out life insurance, the sum paid out should cover any outstanding debts (such as your mortgage) and allow for other expenses such as childcare and your children’s future education costs. Life insurance can help prevent your children suffering financially should the worst happen.
You should also consider what may happen if you’re unable to work due to illness or disability. This is particularly important if you’re self-employed, and don’t have any cover from an employer. Income protection may be an option in this case, paying out a tax-free income after a few months off work.
Saving towards your child’s future may also be on your to-do list; perhaps to give them a leg-up onto the property ladder, or provide towards university costs. You can build up a nest egg from their birth to pay out when they reach 18 by saving into a Junior ISA, for example.
You have time to invest for long-term growth, pooling your money among a wide range of companies in a fund. Investments typically provide a greater return over decades than standard savings accounts. But remember, investing carries risk, and the value of your money can go down as well as up.
Divorce
If your marriage sadly doesn’t work out, your financial picture could change considerably. First, you may need to instruct a solicitor. You should receive a document setting out a guide to their costs, and then you can move onto the financial settlement.
Legal advice can help ensure you get up-to-date and fair valuations on any property and assets. Remember that this includes your pension fund, which is often a valuable asset, particularly if you’re divorcing later in life.
There are plenty of variables in a divorce settlement, and it can be a particularly emotional time, so ensure you are comfortable with the financial outcome. You may decide, for example, that one of you gets the house, while the other receives the pension – or, that a percentage of a pension will be paid to the other party on retirement. There’s also so-called ‘pension splitting’, where the pension holder gives part of their retirement pot to their former partner and transfers this into their name.
Remember that you will both be responsible for any debt on credit cards or loans held in joint names. Finally, don’t forget to get a financial consent order, to avoid any disputes over the settlement further down the line.
Inheritance
If you receive money from a family member or friend in their will, it can be tricky knowing what to do with this cash. There are plenty of options. If you’ve debt to pay off, you may want to use this money to get back in the black. Otherwise, you might consider paying of a chunk of your mortgage, or invest for the long-term towards retirement in an investment account.
Whatever you do with the money will depend on your personal circumstances, but you don’t need to rush into a decision. If you’ve lost a loved one, grief could cloud your judgement. You may want to place the money in a savings account, and make a decision at a later date. Remember that savings of up to £85,000 are protected in most UK bank and building society accounts by the Financial Services Compensation Scheme (FSCS).
Retirement
Hopefully, by the time you reach retirement, you’ve already stashed away a significant sum for your later years. But you’ll have some important decisions to make – and you have more options than ever following the introduction of pension freedoms in April 2015. Until then, the majority of retirees bought an annuity with their lifetime savings. Now, you can do as you wish, which includes drawing cash, staying invested and taking an income. You can also still buy an annuity – or take a mixture of approaches to your retirement income.
It’s worth considering financial advice in the run up to retirement to ensure you make the most of your pension pot, and to avoid subjecting yourself to unnecessary tax charges.
Biography
Harriet Meyer is a freelance writer and editor specialising in personal finance. She has written for a wide variety of publications, including The Observer, the Guardian, The Sunday Times, the Daily Telegraph, MoneySavingExpert, Moneywise, Investors Chronicle, and Saga.
