Investment Guide

Life Stages Financial Planning

Securing Your Future Throughout Your Life

It's never too early, nor too late, to focus on the life stages of financial planning. Beginning your financial planning journey early will give you a head start. If you're a little older, a focus on finance is better late than never.

In this guide we'll break down the five distinct financial stages of your life, and how you can maximise your financial security no matter which part of the life cycle you might be at.

Which financial stage of life are you in?

First things first: which part of your financial life cycle are you in? Many people see three distinct stages:

Pre-work life: The childhood, teenage and university years before you earn a steady income.
Work-life: The years that you work for a living.
Post-work life: The retirement years where you can enjoy the fruits of your labour.

But these three stages can oversimplify financial planning - your financial goals during your first year in the workforce are very different to those in your last, for example. So at AMP, we break down our wealth planning life cycle a little further.

What are the stages of the personal financial life cycle?

At AMP we view financial planning through five distinct stages: teenage years, young adulthood, starting a family, planning to retire and retirement.

Teenage years (13-17 years old)

Your high school years are also your formative financial years. This is when many people will get their first job, usually a casual or part-time role after school or on weekends.

The focus is less on long-term financial security than on learning the basics of personal finance. Ideally, you'll simply start to think about your financial future, forming good saving habits and understanding budgeting basics.

Young adulthood (18-25 years old)

Young adulthood is the point at which you enter the workforce in a full-time capacity, usually after secondary or tertiary education. In your early career, you'll need to gain a basic understanding of employee benefits and retirement plans, which will help you to think about the future.

At this point, most people will step out from under the roof of their family home and face all the financial responsibilities and living expenses of adult life, like rent, bills, food and transport costs. You also get to choose how your disposable income is spent. Often the focus will be on short-term and medium-term goals like travel and car purchases, but it's also a great time to think about long-term financial decisions, and perhaps make some initial investments into KiwiSaver or managed funds to build a foundation of finance.

At the very least it's wise to build an emergency fund: a few thousand dollars set aside 'just in case'.

Starting a family (26-45 years old)

As you move further into adulthood, the focus often shifts to the two most significant financial decisions in your life: finding a home and starting a family. This stage is also common for starting a business.

When thinking of your first home, you'll need to save for a deposit. In terms of a family, you might face a period out of the workforce, and a subsequent gap in earnings. You'll also need to consider and budget for the financial support your children will require over the next two decades, from the obvious, like childcare and education, to things like insurance to protect both you and them.

Planning to retire (45-64 years old)

As your nest begins to empty, and your work life winds down, it will come time to focus on retirement planning. This can be thought of as the accumulation stage, where you save, invest and generally prepare for a life without a regular income. You need to assess your retirement readiness, and you need to make the necessary KiwiSaver contributions to ensure that you have enough money to fund a comfortable post-work life.

Pre-retirement you should create a retirement income plan that ensures you have enough money to live as you want to, and that guides you on managing healthcare and long-term care costs. It’s also a good time to review your investment strategies to ensure they align with your savings goals, such as choosing the appropriate AMP KiwiSaver fund type.

You might find that your disposable income increases at this stage of life. This grants you the opportunity to invest more of your money, and one of the most convenient ways to regularly invest spare cash is to make contributions into a Managed Fund or any other forms of investment with greater liquidity.

Successful retirement (65 years old and above)

At the retirement stage, your financial plan and budget come into play so you can feel good about spending the money you’ve saved to live out your golden years. You should also get your affairs in order, from estate planning to how you want to transfer your wealth.

Actionable strategies that lead to success

No matter which life stage you're in, there are universal strategies that will help to strengthen your financial position:

Understand your risk tolerance: How comfortable are you with financial risk? Are you happy to take more risk for potentially more reward? The answer to this question will define how you invest your money, so use a tool like Sorted's Investor Profiler to find out your risk tolerance.
Choose the right investments: There are any number of ways to invest your money and grow your wealth, including stocks, bonds, property, KiwiSaver and managed funds. Consider risk, liquidity, tax considerations and capital requirements to find the best option for you.
Diversify your assets: One of the most important investment strategies is to avoid putting all your eggs in one basket. By diversifying your portfolio you spread your investments across a number of different assets, which reduces risk.
Work on cash flow management: Good cash flow management ensures enough money is always readily available. But you don't want to keep too much cash on hand when it could be earning returns elsewhere. Maximising your financial position is about striking a balance.
Seek professional financial advice: Financial planning is a complex but super important subject, so it's wise to get help from a financial professional. A small investment in the right expertise can deliver huge returns down the line.

Getting your financial planning through life stages right

At AMP we've built a reputation for helping Kiwis navigate every stage of their financial lives. No matter whether you're just joining the workforce or you're looking to enhance your lifestyle in retirement, our team of experienced financial advisors can help you secure your future.