NEARLY four weeks into 2010, many of us will be counting the New Year resolutions we have already broken and whether we want to give up smoking, lose weight or just take more exercise, most of us are weak-willed and give in to those things that give us pleasure in the short-term.
One of the lessons this teaches us is that we need to keep in view our longer term goals if we are to have any chance of achieving them and deriving the benefits we would like.
The same principle applies to our financial affairs. There are many matters affecting our financial well-being over which we, as individuals, have no control, e.g. the global recession and the measures taken by governments to try to bring about recovery. However, there are measures we might all consider to help us achieve our long-term financial goals and from which we should not be distracted through lack of willpower and giving in to the temptation to take the easy option in the short term. The start of a new calendar year means that the end of the tax year is not far away. In view of that, and the fact that the Government will be increasing the tax burden on us all to fund its bail out of the banks and quantitative easing (printing money to you and me), it makes sense to take advantage of the tax privileged savings vehicles available.
Individual Savings Accounts (ISAs) are a simple way to save with no liability to Income Tax or Capital Gains Tax on the profit you make. Over 50s can invest up to £10,200 in this tax year (£7,200 for under 50s) with up to £5,100 (£3,600) in cash. Any excess over the cash limit must be in stocks and shares, which can include collective investment funds such as unit trusts and fixed interest securities as well as shares.
Don’t worry if you don’t have a lump sum to invest, as many ISA providers will take regular monthly savings. Pension plans remain the most tax-efficient way to invest for retirement.
Both your personal contributions and your employer’s contributions to your pension will qualify for tax relief.
Additionally, you will be able to take part of your fund as a taxfree lump sum when you retire.
Do you save enough in your pension to provide a worthwhile pension in retirement? Will you be able to afford to retire when you want? Could you increase your pension funding to increase the chances of a comfortable retirement? Act before the end of the tax year to make use of this year’s allowances.
The minimum retirement age will increase from 50 to 55 from April 6 this year. If you are aged 50 or over, but less than 55, and hope to retire before 55, you will need to act now to ensure you can.
If your estate is likely to be liable to inheritance tax when you die and you are in a position to make gifts, consider doing so by the end of the tax year to take advantage of the annual allowance of £3,000 for the current tax year and, if you did not use it, £3,000 for the previous tax year. Other small gift allowances of up to £250 per recipient may also be available.
Wills are not a tax yearsensitive subject but everyone should make a will to ensure their estate goes to the people they would like to have it. Don’t delay . . . unless you happen to know the date of your death is a long way off.
Although the priority must be to live for today, it makes sense to make prudent provision for the future.
As the average life expectancy is continuing to increase, many of us now have a good chance of living into old age.
So, to what age should we make our financial plans?
A useful website, howlonghaveigot.co.uk, not only provides a helpful savings calculator to help target a sum of money in the future, but also gives you an indication of your life expectancy, which can be a bit of a wake-up call for some people.
Will your money last as long as you will? What should you do to ensure it does?
Given that the world economy is still trying to drag itself out of recession, this should be a good time to put some financial resolutions into practice.
The matters raised here are not straightforward and we strongly recommend that you consult your independent financial advisor before taking any other action.
Further, the list of things to consider is not exhaustive and your advisers will recommend a course of action tailored to your individual circumstances and objectives.
Don’t let your financial resolutions fall by the wayside. Do it now!
■ Nigel Bourke CFP is managing director of Stockton-based Mercury Wealth Management.
For details, call 01642-670307 or go to mercury wealth.co.uk
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