Stand by your (financial) plan
Having a six-figure pension salary sounds like you’d be living your latter years without a worry in the world. But even when you’re more than comfortable, it’s crucial to stick to a financial plan, says Danny Cox.
Try as they might, John and his wife Cathy cannot spend all of their pension income. John and Cathy clearly do not live an extravagant life and, apart from a couple of horses and a penchant for the occasional classic car, John’s six figure index-linked final salary pension is more than adequate for their needs. I suspect if their income were lower they would “cut their cloth” and make do with what they have, rather than dip into their portfolio for incomes.
John and Cathy are in their 70s and of the silent generation who remember the hard times. They were raised to save before they buy and saving remains in their psyche. Their four million pound estate is almost all of their own work: good earnings, diligent saving, avoiding debt, a couple of small legacies, some good investment advice and the compounding of the housing and stock markets doing the rest. At the same time they have also bought houses for their two daughters.
Inheritance tax is now on their agenda and the question of why they haven’t made more use of gifting arises. At the heart of their reluctance is their biggest fear – despite their wealth John and Cathy are afraid they will run out of money.
I found presenting their cash-flow forecast a little embarrassing. Both are intelligent people, yet neither of them had considered how their estate, and their inheritance tax liability, might grow – something so obvious to me I questioned the need to provide pretty pictures as an illustration.
The financial planner’s role is to bring the future into the present; to give clients like John and Cathy the knowledge and opportunity to do act. DIY investing may be on the rise, but there will always be some people who need the reassurance of a trusted adviser, to allay their nerves, and most crucially, to spur them into action.