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Financial Planning Life cycle planning

Life cycle planning

While working on a comprehensive plan for your clients, it is important to factor in all aspects of life cycle.
Nishant Patnaik Apr 26, 2013

While working on a comprehensive plan for your clients, it is important to factor in all aspects of life cycle.   

The importance of life cycle in financial planning cannot be overstated. For instance, a young unmarried professional who has just started his earning might prefer buying a car over retirement plan.  Here are few points that might help you to better execute financial plans based on life cycle.

Childhood - At this stage of life, education of children is the overriding priority for parents. However, a some children might have keen interest in physical activities, sports and arts. You should try to find out their needs and then work on a financial plan which is best suited for them. You should aware this category about the significance of savings and financial goals.

Young unmarried - This is the period where a person starts his/her earning after education. These days, quite a lot of people earn decent salaries from the early stage of careers. However, most of them are not aware about significance of financial investments. Some young professionals may want to pursue higher studies for more successful future; some might prefer a car, a house or a holiday over retirement plan. You should try to recognize their values, life style and goals. You should help them understand the importance of achieving financial independence. You should try to bring on track their existing credits, savings and spending habits. You have to determine their insurance needs. You should develop a personal financial identity for them. At this stage, the risk appetite of young professionals is comparatively higher, hence they could have a higher exposure to equity funds.

Young married - If they are a working couple then need of life insurance is comparatively less than a couple where only one person is working. SIP would be the better investment route for both of them.  Before working on a comprehensive plan, you must be sure of knowing their family planning. If the couple is planning for a child, you should work on education fund. You need to find out the career goals of young married professionals. Sometimes, your clients may change or quit their jobs due to unforeseen circumstances and at that time they need adequate cushion to tide them for a few months. Hence you need to plan accordingly. Liquid fund are ideal for creating an emergency corpus.

Married with young children - If there is only one breadwinner in the family, ensure adequate risk coverage of the sole breadwinner. You should try to find more avenues of investment for them due to their increasing needs and liabilities. You should also establish better retirement goals for them. Investing some part of earning in NPS would be a better idea.

Mid Life Age - In this stage, a person thinks much about settling their children’s life by assisting them with higher education, marriage, housing etc. As the cost of these things is increasing day by day, you need to prepare a plan with adequate investments to fulfill these goals. You should have to update their existing retirement plans for better future returns. Further, encourage them to settle any loans taken for purchase of house or car, or education of children.

Pre-Retirement - People generally focus on consolidating their assets at this stage of life. You need to work on a plan which will secure their post retirement life. You should ask them that whether they are interested in part time income or volunteer work after retirement or not. You should try to evaluate the expenses for retirement and other responsibilities.

Retirement - A retired person needs adequate corpus to meet regular expenses for the rest of life. If the retired person is a pensioner then corpus requirement for them will be less. You need to re-evaluate the current living conditions and formulate a plan accordingly so that your client could lead a same comfort as earlier did. You should adjust their insurance programs for increasing risk. You should find out spending related to health and income. You should acquire the assistance in management of personal and financial affairs.

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