Steven and Susan
By: Future Financial Planning
Tags: Financialplanning, Money Mindset, Money Management, Financialadvice, Money

Steven is aged 44 and is an employed Engineer. His wife Susan is also 44 and a part-time childminder. Steven contacted Future as he had recently inherited some money from his family and was unsure of his options.

Client Background

As part of the factfinding process we conducted a meeting with both Steven and Susan. We established that they had one daughter, aged 8. Steven was employed and had progressed through the company to management level, recently becoming a higher rate taxpayer. Susan worked part-time, earning around £10,000 each year. Their combined income was sufficient to cover their outgoings. They enjoyed a family holiday in Europe each year.

Steven had a pension from previous employment and was an active member of his current employers’ scheme. Susan did not have any existing pension provision. Aside from Steven’s inheritance of £65,000, they have a small emergency fund equivalent to two months of outgoings. They both stated they would like to retire once their daughter is independent so they can enjoy themselves whilst still relatively young.

Vision

As part of the visioning process, we worked with Steven and Susan to put aside the concept of money and think about how they would like their future to look. They identified the following key goals:

To fund private school for their daughter from the age of 11

To retire at the age of 58

To travel in the first 10 years of retirement

To enjoy meals out, holidays in the UK and regular games of golf throughout retirement

Collaboration

Once we had gathered information on their circumstances, objectives, and risk profiles, we started to build their financial plan. The initial cashflow models showed that it may be possible to achieve all their goals, with some effective financial planning.

Steven’s parents had paid for him to attend private school when he was a child, and he enjoyed his experience greatly. As a result, it was very important to him to do the same for his daughter. It was agreed that putting aside enough of his inheritance for this purpose was a priority.

In addition, Steven’s father was just 64 when he died and therefore retiring early and being able to spend some quality time together was also very important. Although they would like to go on big holidays in the early years, this was not quite as important an objective.

Once we understood their priorities, we were able to recommend the following action:

Set aside £20,000 for the first 2 years of school fees and invest a further £40,000 in tax-efficient plans to offset any increase in fees due to inflation.

Retaining enough in cash to cover the first 2 years ensures that any investments can be held for a minimum of 5 years, allowing time to withstand short-term fluctuations.

We also recommended retaining the additional £5,000 from the inheritance in an easy access account to boost their emergency funds.

It was clear that Steve could afford to increase his pension contributions by a further £200 per month. Steven would benefit from tax-relief, making the actual contributions £250 per month. He would also benefit from additional tax relief due to his higher rate taxpayer status.

As the contributions took his adjusted net income below £50,000, they were able to continue receiving child benefit in full.

As Susan did not have any pension provision, we recommended that she begin making regular pension contributions. Although she doesn’t pay tax, she can still benefit from basic rate tax-relief on the contributions.

The projections showed that their additional contributions over the next 14 years would enable them to retire at 58.

Implementation

Once we had agreed on a course of action, we were able to handle all the paperwork on their behalf. Steven’s existing pension plans were low cost and offered sufficient investment options to meet his requirements. We helped set up new investment plans in line with their risk profiles, as well as a personal pension for Susan.

Lifetime Planning

Due to their long-term need for investment and pension planning we recommended that they sign up for the Future Lifetime Planning Service. This service provides an annual review meeting with their financial planner and cashflow projections will be updated each year to ensure they remain on track to meet their objectives. They will also benefit from a financial planning team to help them with any queries or concerns they may have.

Results

Steven and Susan were happy to have the reassurance that they could afford to send their daughter to private school. Although retirement was still some years away, having a plan in place to achieve this meant they could start thinking about where they would go and what they would do with their time together. The tax-relief they would receive through pension contributions and the fact that they could continue to receive child benefit was an added bonus.