Joy, aged 45, became a client in 2006. At the time she and her husband Paul, aged 56, wanted to become more organised and to try to make sense of their overall financial position.
Paramount here was that although Joy was happy to work hard to age 55, it was becoming increasingly stressful due to the politics of the NHS. So having given many years of dedication to her patients, she wanted to really enjoy her retirement and have lots of holidays and travel widely.
Paul agreed! As a self-employed artist, he has plenty of flexibility, and shares Joy’s love of travel.
Previous advisers they had used did not satisfy their needs to plan, as they felt that they were simply being offered more & more products to buy with no clear strategy at all.
What we did then (in 2006)
- We formed a comprehensive plan, concentrating on what Joy & Paul really wanted along with their timescales. This involves using a specialist planning tool, which we call their Financial Sat Nav
- Then we consolidated their investments, saving them money and reducing risk, and ensured Wills & Lasting Powers of Attorney were put in place (with the help of their solicitor)
The situation now
They have no children of their own, but enjoy visiting their eight nephews and nieces in Hertfordshire, and want to spend more time with them whist they are young.
Now Joy has gone part time until the end of 2017, and has taken her NHS Pension, choosing to maximise the lump sum option available and taking less pension. This makes the purchase of a property without a mortgage a reality.
Their goals now
- To ensure they will not outlive their money as Joy is aware her pension is nowhere near the value of her full time income
- Be tax efficient with their investments and be able to draw on them whenever they want
- Take the minimum risk with their investments whilst still being able to achieve their objectives
- To make sure that they can continue to fund trips to Europe, including to visit family in Malta, and see the rest of the world
- To maintain physical strength, health and fitness, with Paul playing Real Tennis on different courts worldwide
- To have more time to themselves and for friends
- To improve quality of life and be relaxed
- To gain peace of mind by feeling financially comfortable and have no worries
- To gift money to their nephews & nieces
- To buy a property in Hertfordshire so they can visit their family, anticipated value £475,000
- To now have financial independence and security
To help fund this, their assets comprised of:
- An NHS Pension of c£56,000 per annum (pa) gross for Joy
- Full state pensions for both (payable in 2026)
- Pension drawdown income for Paul, c£450 per month (pm) gross at age 60 in 2020
- Projected after tax and after paying off mortgage buy to let sale proceeds, c£230,000 in 2017
- Cash savings, £512,000
- ISA and Unit Trusts, jointly £120,000
What We Did
- An immediate priority was that Joy’s NHS Pension fund value was c£1.5m, way above the £1,25m Lifetime Allowance limit when she turned 55. We therefore ensured she instigated Individual Protection 2014, which allowed her to retain the £1.5m level, saving a lot of tax
- The next step was to further update their long-term financial plan, which wouldinclude measuring their income and assets against their projected outgoings of c£7,000 pm until early 2018
- They would then need c£6,000 pm until (say) age 75, when they expect £3,500 pm should be adequate to age 90 with inflation of 3% pa
- In addition they decided to gift £6,000 pa to their nephews & nieces ongoing
- We assumed a 1.5% net return on cash and 4% net on their risk assessed portfolios
Position before property purchase
Having updated their financial Sat Nav, we looked at their position before purchasing a property in Hertfordshire.
Their position was very healthy, illustrated by their capital in blue in the chart below. The value on the left is in today’s pounds, with age along the bottom axis (which runs to age 90).
Joy & Paul were reassured by these results, but a big concern was to ensure that by spending far more than they first thought on a Hertfordshire property (£475,000), would they still have money to spare for their holidays, travel and gifting to the family? The purchase of this property would also probably involve maintenance costs of around £2,400 pa.
Position after property purchase
The red is a negative capital balance at age 76, which indicates in theory, Joy & Paul will just run out of capital.
So bearing in mind their concern that they may be overstretching themselves, and given all the factors listed above, we were able to take them through their cash position over the next 30 years.
The table below shows:
- Readily realisable capital is available capital (left column) Cash Inflows is income (second last column)
- Cash outflows is expenditure (last column)
- Even with the sale of their Chelsea buy to let, the property purchase in 2017 makes a significant negative impact – reducing capital from £625k in 2017, to £376k the following year
- It means that they are eating into their capital to supplement their pensions through to age 66 in particular
- Then their State Pensions (the yellow line) help to reduce the deficit when theykick in at that time, although they are still using up capital
- It is then projected that their capital will be exhausted at age 76
- They anticipate that their expenditure will decrease at age 75, and so their capital starts to increase again
Please note that in practice they would be unlikely to go into negative capital in reality age 76, as we do not take into account their home and their Hertfordshire property, which by then may well be sold or used as a buy to let to produce more income.
What it meant for Joy & Paul
They were now able to plan with continued confidence, with the focus being on updating their financial plan first and foremost every year and analysing the performance of the invested capital.
They also really appreciate how much of a positive impact genuine financial planning has made to their lives in the past and continues to do so now in retirement.
To be able to see ahead clearly and update matters when appropriate gives Joy & Paul the peace of mind they need to enjoy their lives.
Joy & Paul have now found a superb penthouse apartment very close to the family at the cost they presumed of £475k.
What lies ahead?
We will continue to work alongside Joy & Paul, updating their plan annually, which will take into account their ongoing aims and aspirations, as well as external factors such as inflation and projected investment returns.
In particular, one of the big decisions they will need to make in future is on the subject of Inheritance Tax, as although not a priority now, their estate would be hit with a hefty bill.
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