Enjoy the peace of mind that financial advice can bring

Working long hours and making sacrifices to build up a nest egg for retirement is a reality for many who wish to enjoy the fruits of their labour in later life. But what if your money could be working harder?

As well as practical and financial benefits, seeking financial advice could also help to improve your financial wellbeing. Having a plan in place could provide a sense of control over your finances, both now and in the future. Not only could speaking to a professional financial adviser give you the skills to become more financially resilient, it could also help to offer valuable peace of mind.

Is cash savings the best option?

According to research, around 6.6 million adults are estimated to have cash savings in excess of £10,000 but no investments. This is a worrying statistic, given that high inflation is currently eroding the buying power of cash. It suggests many of us could potentially be unaware of the effects of inflation on cash holdings or, for whatever reasons, are unwilling to invest elsewhere.

When you have spent your entire working life building up a significant pot of savings, it’s understandable to be nervous about choosing how to invest it. This could be because many of us tend to view our income and wealth in nominal (current value) rather than real terms (adjusted for inflation), an effect known as ‘money illusion’. This means we can overestimate the future buying power of cash savings because we are not fully taking into account the impact of inflation.

The chart below highlights some of the potential risks to investors of holding cash. It shows that in the 20 years to January 2023 a cash investor would have seen their cash returns outpaced by inflation. The value of cash declined in real terms during the period, as, from 2017 onwards, the total returns on cash fell below the accumulating impact of inflation.

It’s worth noting though that interest rates were at unprecedentedly low levels for much of this time. This was because central banks cut interest rates following the 2008 Global Financial Crisis making this an unusually challenging period for cash investors.

Chart: How a medium-risk portfolio has performed against cash and inflation

Finding an investment that aims to earn a better return than cash often comes with risk, so you need to make sure you fully understand your tolerance to risk and whether you sit at the more cautious or adventurous ends of the risk spectrum. This is where speaking to a financial adviser can be invaluable in helping to ensure you consider all the factors to reach the right investment decision for you.

Cash savings and investments are protected to the value of £85,000 per person per institution by the Financial Services Compensation Scheme (FSCS). However the value of investments may fall as well as rise.

Professional financial advice could pay off in the long-term

Whilst it’s possible to undertake ‘DIY’ investing and financial planning, making short-term investment decisions now could have a potentially serious long-term effect on your finances. Plus, it can take time to understand the intricacies of financial planning which is a luxury not many of us have as we juggle the ups and downs of life in general.

This is where a trusted financial adviser can step in. An adviser can help you choose the products that are right for you and can also offer tailored cash flow modelling, which is used by financial planners to forecast your future finances. This could show you such things as: how large a nest egg you may want in order to retire at 60; how you might be able to save towards your children’s education; or how a pension plus an ISA pot could support your retirement plans.

An adviser’s task is to help you fit together all the moving pieces – dreams, income, outgoings, and an uncertain economic landscape – to create a cohesive plan that aims to help you achieve your goals.

Affording pension advice

Taking financial advice could be considered as an investment in your future. It may cost you now, but the benefits you reap could last long after the short-term dent in your pocket. But if the expense associated with seeking advice is still a concern for you, then there is a way to fund the cost without you having to shell out a large amount of money up front.

In April 2017, the pension advice allowance was launched which allows you to withdraw up to £500 from your pension savings to contribute towards the cost of retirement and pensions advice.

This allowance can be used three times throughout your lifetime. So, for example, you could choose to take advice as you’re accumulating your wealth to discover the most effective ways to save for your future, again as you’re approaching retirement to understand how to access your funds in a tax efficient manner, and another time after you retire to discuss how to ensure that your pension pot lasts your lifetime.

It’s worth noting that you can only use one of your three £500 withdrawals per tax year, but you won't be charged any tax on your withdrawal provided you use it to pay for financial advice. You’re able to access this allowance at any point in your life, but it’s only available for those who have a defined contribution pension. Withdrawing from your pension fund might not be the right thing for you based on your personal circumstances and so for more information and to check your eligibility, contact your pension provider

What’s more, at Schroders Personal Wealth, you won’t have to make a financial commitment until after you have received your financial plan. We'll begin with a free, no obligation conversation to understand if our service is right for you. There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.

So, as well as having a plan in place to help you navigate key milestones in life whilst aiming to ensure you remain on track to achieve your long-term financial goals, you could also benefit from the peace of mind that financial advice can potentially offer.