In terms of everyday living, the needs and aspirations of a 60-year-old and 30-year-old vary greatly. So the contrast between the two can be something of a minefield to navigate when it comes to financial planning.
This is something advisers know only too well. Having to juggle clients of various ages and in different stages of their lives is fundamental to the job. But not all the answers are obvious.
FTAdviser In Focus caught up with Toby Bentley, financial adviser at Lathe & Co, to hear his thoughts on how advisers can overcome issues that arise due to clients having different priorities, and how financial needs change as life evolves.
FTAdviser: What are the main issues that arise when helping different generations with financial planning?
Toby Bentley: Understanding an individual’s priorities is key to successful financial planning, and the obvious issue with working with different generations is that those priorities change depending on what stage of life they are in.
Older generations tend to be in a decumulation phase where retirement planning and passing down money to their own next generation are the main goals. Younger people, conversely, are typically in the accumulation phase, where building savings for a house or a family is the short-term aim.
Another key differentiator between generations is the contrasting economic environments various age groups lived through, and understanding them plays a crucial role in tackling intergenerational financial bias.
A classic example is the role of historical interest rates, with older generations who experienced higher rates far more likely to be predisposed to paying down mortgages than younger people who now benefit from cheaper debt and can therefore reallocate their assets elsewhere.
Each generation also benefits from, and loses out to, their own set of financial planning legislation, with changing pension rules being chief among the examples here. Allowances that might be eligible for one person almost certainly won’t be for their generational counterpart.
FTA: Broadly speaking, what should advisers focus on in clients' accumulation and decumulation phases?
TB: Financial planning for a 30-year-old will typically be focused on getting the basics in place during a period of instability as they buy first homes, start a family or establish careers.
These basics include mortgages, insurances, savings and tax planning, with more of a focus on getting the infrastructure set up to let the time they have and compound interest do the work for them. Their risk appetite may be slightly higher as they have a longer investment horizon.
A 60-year-old obviously has less time to rely on these basics to build a pot of assets, and would typically be looking to plan for retirement in the near future using the assets available to them.
Retirement looks different to everyone, and therefore the planning at this stage will focus on things like modelling a sustainable retirement income and inheritance tax planning. They may have a reduced attitude to risk at this stage, with a preference for income producing assets.