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Investing to fund lifestyle and retirement

The term lifestyle investing has been around for decades and it’s still used today to describe investment plans that help everyday people fund important milestones and carry them comfortably into retirement.

The idea behind lifestyle investing hasn’t changed, but the number of milestones and financial obligations that people now need to meet has – in some cases, increased significantly.

Securing a family home, providing for children and saving for retirement have always been the big three in terms of financial planning, but with more events making the list, even the most robust saving and investment plans are being put to the test and expected to stretch further than ever before.

The new norm

Today’s financial landscape is very different too, something the older generation might be more aware of because they’ve lived through different times.

Getting on the property ladder is no mean feat for generation rent, as they’re forced to struggle with the catch 22 of paying down student debts, meeting the rising cost of living and paying the highest rents the country has ever seen – all while saving for a house deposit.

Armies of young families who bought properties during the Celtic Tiger are trying to manage their way out of apartment living and negative equity in some cases, so they can upgrade to homes with gardens, neighbourhoods with good schools and manageable commutes.

The impact goes all the way up the chain to empty nesters too, many of whom have found their spare rooms start to refill. It’s certainly not an uncommon story today for adult children and their families, to return to the family home temporarily, in a bid to bolster savings and improve their financial situation.

There are different schools of thought on who has been impacted most. For some, its younger people forced to delay putting down roots and starting families. For others, it’s their grandparents – the people who have worked their way to a healthy retirement position only to find they need to push it out or downgrade their plans, to help family members.

Either way, there’s a growing trend that’s seeing more and more retirement pots compromised and would-be inheritances shared earlier than planned by parents who want to help their children meet the costs of everyday things like accommodation, school fees and family cars.

Mother playing with her baby in the park

Want versus need

I want a new car, but I need to pay my childrens college fees.

I want to retire this year, but I need to help my children get on the property ladder.

For many parents, their children’s wellbeing will trump all else, regardless of how old they are and that’s a big issue. Financial responsibility doesn’t always have the typical post-college cut off anymore and some parents are taking on more on behalf of their children, sometimes to the detriment of their own financial future.

How can lifestyle investing help?

Goal-based investing means applying some future thinking early on. How much can you afford to invest? What funds do you want to invest in? Are you a conservative investor or more of a risk taker? As you know you can also lose money when investing so these questions need to be answered before you begin. That is why speaking to a financial advisor before you start investing can help you answer all these questions.

A financial advisor will ask about your goals and the timeframes you’d like to set around them. They’ll talk to you about your retirement plan, when you’d ideally like to finish work and the kind of lifestyle you’d like to have later in life.

Professional advice brings an unbiased view that can be hugely beneficial when you’re creating a plan that needs to be 100% personal to your needs – which isn’t always easy to achieve on your own. Advice will also prove useful as time passes, it’s important to track your plan’s progress and remain open to advice that can help it grow and that can help you during any downturn in the market that may happen.

Young people chatting

What does lifestyle investing look like?

In your 20s: Lay the right foundations

With any savings or investment plan the earlier you start the better. Even modest, regular investments with time to grow can create a great starting point. It is important to remember to diversify as with any investment that has no guarantee you can lose some or all of your money. Investing early will also create good financial habits that will stick with you for the rest of your life, so it makes sense to get the basics right from the outset.

Aim to:

  • Take advantage of employer-sponsored retirement plans
  • Avoid unnecessary debt and pay off any necessary as soon as possible
  • Know your budget and live within it
  • Save and create a safety net that you can rely on should your situation change
  • Manage your finances, cover the important things first and assign a portion of your salary to an investment plan and put it to work
  • Start setting financial goals, they’ll change over time, but they will give you a strong starting point
  • Assess your appetite for risk and work out where your comfort zone lies
  • Talk to a financial advisor and create a starter investment plan that can change as your needs and goals change.

In your 30s: Align life goals and financial plans

Your 30s can be an expensive time, filled with some of life’s biggest and most expensive events. Houses, marriage, babies, schools and career decisions are just some of the things that will bring major financial decisions changes. The goal at this stage is to maintain financial balance – saving in the present so you can build for the future.

It helps to make decisions with clear foresight. A new car will roll off the forecourt and depreciate at 40% in the first year alone. While a white wedding can set a couple back around €24,000 in the blink of an eye, eating into savings or worse still, creating long-term debt.

Source: Whatcar.com Depreciation: What is it and how to avoid it. August 2016 & Confetti.ie May 2017

Aim to:

  • Keep budgeting and keep saving
  • Revisit your goals and adjust your investment plan to stay on track
  • Get a realistic view of what’s possible now and in the future based on your current saving and investment efforts
  • Protect yourself and any dependants with the necessary wills, trusts, life and disability insurance
  • Help build wealth by investing your time and energy into things that can give back, like home improvements, career progression and new business ventures

In your 40s and beyond: Stay smart and get strategic

Financial obligations will keep coming but at this stage, your retirement must be prioritised and planning for it should go up a notch. That means making smart decisions around your earning potential as these are typically your best earning years.

Aim to:

  • Maximise income and reduce outgoings
  • Make smart career moves and consider remuneration packages with retirement front of mind
  • Revisit investment plans, performance to date and look at whether you can afford to save more to help achieve growth
  • Consolidate retirement accounts from previous employers
  • Understand your financial situation inside out so there are no surprises
  • Get financial help if you need it, information power and if your plans need to change to reach your goals, you should be ready to act

A goal without a plan is just a wish.

Write your goals down and be clear on what they are. Life comes with lots of ups and downs but with the right financial plan in place, key milestones and retirement can be events you can look forward to as you will be prepared for them.

Learn more

Do you make wishes or plans? Read our blog post to see how you can be more in control of your finances.