Financial Planning Myths People Still Believe

1. It is too early or too late to start saving for retirement

A pension should be an investment that grows over time.

A key benefit of investing early, if invested sensibly, is that it will make compound returns; for example, if your current pot is £100,000 and it makes 5% over 12 months, next year, your growth is from a starting point of £105,000. Over the long-term, this compounding effect can have a dramatic impact on the size of your pension pot.

So, the earlier you start saving, the higher your projected returns over an extended period.

It is important to note that even if you did start saving from an early age, you should continue to save into your pension in order to mitigate risk.

If you did not start saving as soon as you started work, it is not too late. You might, however, need to save more to meet your longer-term ambitions. You may also need to consider whether you want to increase your risk appetite to ‘make up’ the difference. You should seek expert advice before seriously considering this.

It is important to consider the age at which you wish to retire, what income you will need to enjoy the lifestyle you want, and whether your current plan will achieve that goal. A wealth planner can model your cashflow and help you achieve your goal.

2. There is no such thing as good debt

Good debt is affordable and helps you to achieve your objectives. To take an example, a business might take out a loan to invest in equipment. If that equipment improves efficiency and creates a greater return on investment versus the interest costs of the debt, it can be considered good debt.

Bad debt leads to a negative outcome. Either you cannot afford to repay it, or you use the capital in a way that does not benefit you in the long-term.

3. I have got plenty in savings, so I do not need insurance

A big part of wealth planning is about anticipating the ‘what if’ scenarios. No one can be sure about the future and insurance can be a lifeline in the event of illness, job loss, or unexpected death.

It is very possible that you go through life with no unexpected challenges and have no need for a form of contingency, but people often chose to think of insurance as a ‘piece of mind premium’.

4. My business is my pension, so I do not need to have a separate pension account

Many entrepreneurs see their business as their pension and focus on building it to a point that they can sell it and retire using the proceeds to fund their lifestyle. However, if your business faces unforeseen difficulties, this can completely derail your personal retirement plans.

As with a well-structured investment portfolio, risk can be mitigated with multiple income streams.

From higher interest deposit accounts to pension plans and investment portfolios, there are plenty of options to diversify your income streams. It is worth seeking expert advice about your retirement plans.

5. I do not have enough money to invest

Many people have a misconception that in order to invest, you need large sums of money.

From ISAs to investment platforms, or just a simple pension plan, there are plenty of reputable, regulated options with very low entry thresholds.

It is always worth speaking to a professional, where possible, about your investment options, but investing should be considered as part of your long-term plan to help you achieve your financial goals.

Speak to our wealth team about your wealth planning needs