The Wire: Winter 2020 – Case Study – Living your best life

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Case Study – Living your best life

When it comes to a financial review, it’s often all too easy to focus too much on technical issues and what the market is doing. But we mustn’t forget the real value of financial planning is to map out and then hopefully achieve your goals. Put another way, live your best life.

In a recent review meeting, I got to talking to a couple, Andrew and Lisa, who I have worked with for many years, about the future.

We talked about the fact that the couple had worked hard all their life. Ideally, they wanted to spend more time enjoying their second home in Italy. The property is in a wonderful part of the country where there are many things to enjoy there all year round. 

This would mean, not stopping work, but certainly slowing down. The issue was, could they afford to?

  • They have regular expenses to meet which we worked out in detail, considering both the current situation and how they might change over time
  • They still had a balance of their UK mortgage to pay as well as some on their holiday home
  • They wanted to be in a position to help their son and daughter onto the property ladder in a few years’ time and also wanted to put funds aside for weddings.

What we did

Taking the information above, along with their other assets and expected income, I worked out a detailed lifetime cashflow analysis. 

Early findings suggested the plan wasn’t affordable. It looked like they would run out of liquid assets in their late 60s, which was far from ideal. While they still had two valuable properties, that doesn’t pay the bills!

It’s often the case that we need to refine the first cut of a financial plan. This made us think about what could be changed and what was important.

Andrew and Lisa knew they really wanted to spend more time in Italy. After several different iterations, they concluded that, in later life, they probably wouldn’t want to travel to their second home as much and wouldn’t be able to enjoy it in the way they do now.

So, we modelled the sale of the property. We also incorporated Andrew and Lisa downsizing their UK property. Lastly, we worked out, based on Andrew’s expected earnings, when he could achieve financial independence. 

The outcome

The result was a costed financial plan. No plan like this can guarantee the future but it was based on what the couple and I both felt were prudent assumptions. They couldn’t quite afford to slow down yet, but they had much more clarity on when that time was. It meant they could spend an increasing amount of time in Italy over the next five years. 

We also used this as an opportunity to head off any threats that might impact on their plans:

  • We were able to model that Andrew’s early demise would impact Lisa quite significantly from lost future income. We were able to work out exactly how much additional life cover was required on Andrew’s life to bridge the gap.
  • Andrew had income protection in place, but the model showed it was necessary to increase the level of cover to protect the family against potential long-term illness, again impacting on Andrew’s earnings because he is self-employed.
  • Lastly, the level of Inheritance Tax due after both their deaths was substantial. The couple are too young to give assets away at this stage, so a simple life cover plan, set up in trust and payable after the second death, was a very cost-effective way to ensure the family can benefit from the entire estate that Andrew and Lisa had worked so hard to build up. 

Future reviews

Like any plan, this needs to be kept under review. Each time we get together we will look at how income, the liabilities, and the asset base has changed and continue to refine it to make sure the couple remain on track.

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