Neil Homer, independent financial adviser Stafford - Modelling different financial planning scenarios
This case study ‘Modelling different financial planning scenarios’ is part of our ‘The value of an independent financial adviser’ series.
Neil Homer, independent financial adviser, Stafford, provided financial advice to Mr B a fifty-five-year-old single man with no dependents. He works for a bank and recently inherited investments from his mother. He wanted to retire at sixty-five, but was concerned he wouldn’t be able to maintain his lifestyle in retirement. He had also been offered the opportunity by his company to take a 6 month sabbatical from work to take part in a charity sailing competition sponsored by the bank. He was keen to take part in this and wanted to understand how taking a six month sabbatical from work would impact his future finances.
Neil used cashflow modelling to provide his client with a personal lifetime financial plan using his current and forecasted wealth, alongside his income and probable expenditure.
How Neil Homer added value with his independent financial advice:
1. Three different financial scenarios modelled using lifetime financial planning
Scenario 1 – Mr B works until sixty-five and then retires
Neil Homer was able to model Mr B’s current investments and his future state pension and company pensions to show him how much income he would generate from sixty-five years of age. By reviewing Mr B’s investments, Neil Homer recommended that he diversify his portfolio and transfer his holdings out of some poorly performing pension and investment funds. As he had over ten years until retirement and was investing for the long-term, he recommended Mr B invest in a diversified portfolio of equities, bonds and property that were forecast to return 5% per annum. To take advantage of tax-efficient savings, Neil Homer also recommended he invest into his pension fund.
By adjusting his investment portfolio, Neil Homer showed Mr B how he could afford to live to one hundred years old and even pay for nursing care if necessary.
Scenario 2 –Mr B takes a six-month career break at fifty five and then works until sixty-five and retires.
If Mr B took a work sabbatical and didn’t contribute to his pension for a year, his Lifetime Financial Plan shows that he would have enough income to last until he was ninety-nine, assuming he didn’t need full-time nursing care.
Scenario 3 – Mr B suffers an illness at aged fifty-seven and is unable to work between the age of fifty-seven and sixty-five
Mr B’s lifetime financial plan forecasts that although he would be entitled to support allowance from the government if he was unable to work, his savings and investments would be required to supplement his income and these would only last until he was seventy-five.
2. An insurance policy was purchased to protect Mr B’s income should he not be able to work due to long-term illness
Neil modelled the purchase of an insurance policy into Mr B’s Lifetime Financial Plan, which protected him if he was unable to work for over six months. This gave Mr B the security that he would always have enough income to maintain his lifestyle in retirement.
Key considerations for modelling different financial planning scenarios
• Be honest about your financial goals and priorities so your financial adviser can model various lifestyle planning scenarios
• Meet your independent financial adviser annually to review your Lifetime Financial Plan. This ensures your plan remains on track to achieve your financial goals in retirement.
Now Mr B has his Lifetime Financial Plan set up and he has purchased an insurance policy he is satisfied that he can maintain his lifestyle up to and during retirement. By regularly meeting Neil Homer and taking his financial advice, Mr B can amend his plan where necessary so it remains on track to meet his financial goals in retirement.
Other case studies in 'The value of an independent financial adviser' series:
Mark Bowen, independent financial adviser, St Albans - Reviewing your defined benefit pension scheme
Deb Nolan, independent financial adviser, Leeds / Bradford – Understanding your financial entitlements.
Simon Prestcote, independent financial adviser, Barnet, North London – Generating an income following a property sale.