A project we’re often asked to help with is when people have reached a stage of life where they have built wealth and had career success, but they are looking for help being more strategic about what it all means, what comes next, and what’s possible. Mark and Alex had both worked for 30 years, been successful in their fields, built up wealth in various pensions and investments as they went, without too much thought about their decisions. They had done most of the big things – using ISA allowances and funding pensions through work, paying off debts.
But they were becoming concerned that decisions were getting more complex and there was a need to be more strategic about things, so they appointed us to draw up a financial plan and work with them to execute it. There were a few triggers for them seeking advice:
- They felt their level of wealth was at a point where it needed more hands-on management, from an impartial expert.
- Stopping work was within sight, probably within ten years, and no longer felt like a distant, abstract concept.
- They were concerned that as they drew closer to the point of retirement, a wrong decision could be much harder, maybe impossible, to rectify.
They had very little idea what was achievable, what options their wealth translated into. How much longer did they have to work? What would their wealth mean in terms of a sustainable income when they stopped work? What would be the impact of stopping a few years earlier or later? For Mark, could a late job change to the charity sector and a drop in income be accommodated?
First, this meant getting a really clear picture of their finances. We helped them get a lot closer to the details, exploring their income against outgoings, their assets and liabilities, their access to future income streams. We helped to set out and prioritise objectives and put numbers to them.
From this, we were able to build a lifetime cashflow projection. We were able to determine that when Mark and Alex stopped work, most of their core income needs would be catered for by fixed income from their state pensions plus ‘Final Salary’ pension income from previous work, which they had assumed wasn't significant, but which had been increased in line with inflation to a higher figure than they expected. A small element of their discretionary spending would be met by income and growth from their investments (mostly held in pensions and ISAs).
We explored their risk tolerance and agreed a sensible assumed rate of growth on their investments, to see how achievable these withdrawals were. With the baseline plan agreed, stress tested, and found to be achievable, we explored alternative paths to see how much flexibility there was. Retirement five years earlier than planned was possible, without too much extra risk of shortfall. This would allow Mark to follow his plan to use his skills in the charity sector without needing to earn an income from it.
With the strategy in place, we were able to recommend the best combination of investments and pensions to help the plan succeed. We were able to reduce investment product costs and improve the investment prospects of the fund, bringing them in line with the assumptions used in the plan. We reduced risk by adding further diversification, and set out a regular review process, to make sure the investments could be relied on to support the plan for the long haul.
Your capital is at risk. A pension is a long term investment not accessible until age 55 (57 from 2028). The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances
