When I first met James and Claire some 12 years ago they were in their mid-50s and at somewhat of a crossroads. Their two daughters had recently left home, and, after a 28 year career with Scottish Gas, James had been made redundant just six months ago. He had managed to find another job, but frankly, he was not at all happy with his new employment and struggled with the idea of having to work there for another 10 years or more before he could retire. Yes, he had had a payout from the redundancy, but it wasn’t life-changing. Claire worked part-time at a school which she quite enjoyed, although she said she would happily walk away if she could. Her mother had died recently, and having sold her mum’s home, Claire had received about £100,000 as a legacy.
With the money from this new windfall “doing nothing”, James and Claire decided to make an appointment with their bank for advice. The bank identified that the funds were surplus to requirements and advised them to take out a bond from which they could withdraw 5% per annum as an income. Although the couple thought the extra income may be useful, they were hesitant to take up the bank’s proposal because in truth they were living quite comfortably on their income anyway, and they weren’t sure it was the best use of Claire’s money.
They decided they would get a second opinion, and so arranged to meet me. At our first meeting, a number of things came to light. They still had a mortgage of about £30,000 which was not due to be paid off for another five years. Should they pay it off now, or let it run to maturity? Due to their ages, and the rules at the time, Claire would receive her state pension in four years’ time, whilst James would have to wait another nine years. Their house needed a new roof, and a general upgrade. Their daughter Helen was a trainee architect and had bought her first flat, but James and Claire were helping with the monthly costs while Helen completed her training. Their other daughter was due to get married and they wanted to help with the wedding costs. On the plus side, they had a savings plan due to mature in five years time, Claire’s legacy also included a temporary annuity that would be paying a small income for another five years, and being a prudent couple, James and Claire had built up substantial cash savings over the years, although in their own words it wasn’t a king’s ransom! Above all, James’s pension from his long service at Scottish Gas was a “final salary” scheme that promised to pay about £25,000 per annum – but, that was more than five years in the future.
However, through careful discussion what I really discovered during that first meeting was far more important than these material facts. What James wanted more than anything was to stop working at a job he really did not enjoy. Claire knew that this would make them both much happier, but had assumed it was impossible. As well as being able to spend more time with family and pursuing their hobbies, James would love to take up some landscape gardening for friends and neighbours – just part-time. He genuinely loved gardening and thought it might bring in a bit of useful “pocket money”. That said, they had assumed that this “new life” would be at least five years away, when James got his Scottish Gas pension, and maybe not until he was 65 when his state pension started – some nine years hence.
So, the next step was for our team to construct a financial plan, at the heart of which was a lifetime cash flow model taking into account all the details mentioned above. This also involved detailed input from the clients in terms of their present and projected expenditure patterns – regular monthly outgoings, as well the lump sums needed for two weddings, future car replacements, and so on. We had to take into consideration inflation, possible fund growth on any cash they may decide to invest, and tax. We needed to look at all possible ways of accessing James’s pension, and consider how much of the couple’s resources should be held back for shorter term cash requirements and how much could be invested for longer term growth. More than anything, we had to look at the big questions: What if James was to retire now? What if they both retired now? Would they really have sufficient resources to be able to retire in confidence and never have to worry about money?
Cutting to the chase, James and Claire retired, permanently, just three months later. They made this decision following two further meetings where their lifetime cash flow model was presented, then challenged, challenged again and stress-tested. By that point James and Claire were both confident that they could do so, and do so in comfort having challenged the model in various ways: what if our house repairs end up costing twice as much as we thought, or the weddings costs are more? What if the stock market crashes? What if inflation takes off again? Of course ultimately there are few, if any unqualified guarantees in life, but James and Claire felt they were in a strong position, and if necessary had scope within their expenditure to rein it in if needed. James didn’t need to earn anything through gardening, but it was there as an additional safety net.
The upshot of all this is that, having met with Acumen Financial Planning, the couple effectively had at least five extra years of living the life they wanted to, rather than being faced with soldiering on in a job one of them disliked, and that effectively stole time and prevented them living their chosen lifestyle. This is the power of true financial planning, giving clarity to financial roadmap that lies ahead, as opposed to the bank’s solution which was to sell them an investment product that frankly, they did not need and would have meant them continuing to work for many years into the future.
James and Claire have remained clients and attend annual meetings where their financial plan is regularly updated. This is an essential part of the process, as circumstances, markets, legislation, health, and a host of other variables are constantly at play. Both their daughters are now happily married and James and Claire have four grandchildren. In more recent meetings discussions have turned to planning for how the couple can help their grandchildren through the use of Junior ISAs, trusts, and inheritance tax planning.
By Bill Saunders
on 2 May 2022
This case study is related our Pensions & Retirement Planning service