Case Study One - Financial Planning
Situation
A client, John, was worried that he wouldn’t have enough money saved to be able to retire at age 55. Now aged 48, his frustration was that he couldn’t be certain if the policies he had invested in over the years would give him what he wanted and help him achieve his objectives. Added to this, he did not really know how much money he would need to live on once he had retired.
Part of his portfolio consisted of private pension funds. On speaking to his accountant he had been advised to contribute an additional £15,000 to these private pensions to maximize the amount of tax relief. As a higher rate taxpayer, his contribution would be £9,000. Although an attractive idea, he wanted to know if this was the right course of action.
What We Did
When we started discussions with John it was apparent that his aim was to ensure he had enough income so he could sustain his lifestyle when he retired. The starting point for us was to take a holistic view and create a financial plan that included all his assets, including his NHS Pension as well as the private pension funds built up. This also included the likelihood that he and his wife would move to a smaller home when they reached their 70`s.
Once we had built his cash flow forecast, which enabled John and ourselves to look at how his finances would look in seven years time and thereafter, the results indicated that his current planning would enable him to:
- Receive £3,500 income per month in today’s terms aged 55-74
- Receive £2,800 income per month in today’s terms after age 75
- Replace his 2 cars between the ages of 55-74 every 4 years (at a cost of £20,000 each time)
- Fund his 2 daughter’s weddings at 8,000 each
This financial map was essential to give the measurement required, and took into account all factors, including the realistic amount John needed to retire in comfort (something John did not know until then).
The forecast indicated that John had already achieved his objectives, and demonstrated that he did not need to invest another penny into retirement planning.
Proving that the tax relief alone was not sufficient reason to invest more into pensions.
The Result
John knew exactly where he stood now and had a clear plan for the future with the added comfort that he was on track to achieve his objectives. The money that he was going to invest in the pension funds was actually used to reduce his debt, as well as paying for an extra holiday with his family!
