Overview
Anton had run a successful manufacturing business, before selling up to retire with his wife Mia. They had made substantial gifts to their children and felt that the remaining proceeds of around £1million should be used to fund a long retirement for themselves.
Their main concern
Whilst they had realised a large sum for Anton’s business, there was a significant shortfall between their income and expenditure of around £50,000 per annum and they didn’t really want to compromise on their lifestyle in retirement.
They were looking for investment advice and in particular how to generate additional income, as they had calculated in simple terms that their money would run out in 25 years’ time (when Anton would be 95 and Mia 90). This didn’t overly worry them, but they preferred to have a greater financial cushion in retirement.
Mia had a recent health scare, which meant they were both very keen to delegate some responsibility for their finances, allowing them instead to focus on spending their time and energy on their retirement, with family, friends and travelling.
Our main advice
It wasn’t realistic to achieve sufficient income from their capital to meet the shortfall between income and expenditure, so instead we recommended they retain sufficient cash deposits to cover at least 6 years’ worth of shortfall (£300,000), which they would ‘draw down’ each year. This was invested into a series of deposit accounts with different investment terms, to maximise the overall interest generated.
We also recommended the remaining £700,000 be invested for capital growth, to be left alone for at least 7 years (though it could be accessed if really necessary), investing into a suitable mix of ‘growth’ and defensive’ assets to match their attitudes to investment risk and timescale. We recommended a reasonably cautious approach initially.
Our objective was for the medium to long-term investments to grow at around 3%-4% per annum above inflation, to try and replace as much of their spent cash as possible by the end of year 6. We would look to top-up their cash when necessary from the longer-term investments.
What we did
- We produced a cashflow forecast, showing how long their capital could last using a reasonable rate of return for their investments (for their given risk profile) and accurate interest rates on the cash deposits.
- We arranged the new investments via an Investment Platform, to simplify the administration and reduce costs for the initial investments and any changes we would recommend in the future.
- We recommended a diverse portfolio, to spread the risk, using a number of ‘preferred funds’ for the asset types recommended.
- We produce twice-yearly reports and hold twice-yearly review meetings with Anton and Mia to look at the performance of their investments, update the cashflow modelling with estimated versus actual investment returns, and recommend any changes we feel would benefit their portfolio.
- We automatically use their ISA allowances each tax-year from their existing investment portfolio, to ensure their portfolio is as tax efficient as possible.
What were the benefits
- Anton and Mia have the peace of mind of knowing that their retirement is benefiting from a structured approach to the investment of their capital, which is invested in line with their own objectives and timescales and within defined risk parameters.
- Our ongoing advice and reviews mean that any changes to their circumstances, objectives, attitude to investment risk or the economic outlook are considered and changes to the investments are made when appropriate.
- The regular updating of the cashflow forecasts gives them peace of mind that they are unlikely to run out of money too soon.
