Money makeover is a new monthly series on the Adviser Points of View website in which various people at different life stages, seek financial advice from a financial adviser for the “first time”.
The fourth makeover this month involves Jenny, aged 68, who has recently filed for divorce after several years of separation from her husband. They had agreed a 50/50 split of their total net worth.
“I approached Sam Whybrow after being referred by a work colleague. I was concerned that I would not have enough money to live on post my divorce. I needn’t have been worried because Sam put my mind at ease within the first twenty minutes of our initial phone conversation and we haven’t even started to work together in earnest yet!”
It was estimated that the residual amount Jenny would receive from her divorce could be around £750,000 in pensions, £200,000 in savings and her own unencumbered home. She expected her annual expenditure to be around £30,000 per annum but would like it to be more like £40,000 per annum.
I understood from Jenny that she had no children or concerns with leaving assets to anyone in particular beyond her lifetime. It was also apparent that she would like to live her life without fear of running out of money and, if possible, thoroughly enjoy the remaining years of her life. I planned to help her do that.
It was clear to me that the capital Jenny was likely to receive, if carefully managed, could provide her with the lifestyle she wanted without fear of spending or her money running out. As she had nobody in particular to leave her estate too, she could happily spend her capital, including her home equity if needed, and even erode it – something that she had not considered. Simply by my re-framing her financial picture Jenny said that “I had brought her new found financial clarity” and “eased her worries.”
From our initial conversation, Jenny had also not factored in the state pension she was receiving and that without any growth/inflation her net worth could last her way, way beyond her life expectancy at the £30,000 per annum rate of spending she has loosely earmarked.
After briefly speaking, we agreed to meet up a week later. In the meantime, I asked Jenny to “forget about money and think about what lifestyle she wanted to live” and then we, together, could calculate the total financial price of that lifestyle including assumptions about investment growth, inflation and many other financial factors.
By taking money ‘out of the equation’ it would allow her to negate the fearful effect it was having on her. Subsequently my job is to create a meaningful and well thought out financial masterplan to deliver that lifestyle in a tax and investment efficient way.
This will involve how to invest her new pension, what level of savings she should retain as an emergency fund and what level of return she needs to deliver the “price of her new life” so she can get on and enjoy it.
Sam Whybrow is a chartered financial planner (CFP) at Cervello.
Edited by Sabuhi Gard
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