Mike and Amanda's Story

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Background

Mike and Amanda are both aged 52. They have been married for 20 years. Their son (Scott) is 18 and just about to go to Uni and their daughter (Lyn) is 17 and just finishing her GCSEs.

Amanda’s Mum (Miriam), is 83 sheltered accommodation and sadly losing some independence. Both of Mike’s parents (Jeffrey & Angela) are alive and in their late 70s.

They live in their own modest St Albans home valued at around £650,000 and they own a small flat which they bought at the height of the property boom.

Mike runs a hair salon in St Albans which has now been trading for 10 years. He employs 5 people and takes an income of £50,000 a year. He works an average of 60 hours a week which he is beginning to tire of. Amanda works part time as an administrator in a local engineering firm. She earns £19,000.

They are disciplined savers but don’t really know what to expect from their efforts. They also like to live fully today. Holidays being their particular weakness. They don’t have clarity on their longer term goals and they regard themselves as financially unsophisticated.

They have a mortgage on their main home and an interest only mortgage on their buy to let property. They had anticipated the ongoing rental from the flat would be part of their retirement income strategy.

They have a reasonable amount of savings which are mostly held in deposit based accounts. They also have some shares and unit trusts.

 

Their Goals

With Mike just passing his 50th birthday, and the children becoming less dependent, there has been a realisation that actually, if they want at some point to stop working, they need to ensure they are being sensible with their money. They feel they're doing ok day to day but now, over the next 5-10 years, they want to get their mortgage paid off, give the kids a helping hand and get a better understanding of when they can afford to jack it all in. They're also becoming more aware of the need to consider other things like inheritance tax which Mike is finds particularly frustrating.

 
 

Understanding

Mike and Amanda approached us for some help. After an initial, free meeting, we agreed to carry out a Comprehensive Financial Review. We pulled together all the information we could about their assets, liabilities, income, spending and the various policies and plans they already had in place. In addition, we asked them to give greater consideration to their goals and priorities for the future. Assuming these goals were all achieved, we created a money map to demonstrate the impact of achieving them. They were surprised by the result. It helped them to see that whilst today their income was good and covered their needs, without a change of direction, once retired, they would have little choice but to either give up on some of their goals or find some other way of funding them. They told us this was the first time they had ever taken such a step back from their day to day position and it really helped them to understand the strengths (and weaknesses) of their present position.

 

Control

Understanding what they had was an important first step but of course, showing them a projection of their financial future gave them some concerns. It looked like they were going to run out of money.

It's at this point that proper financial planning starts; if this is our present position, what do we need to do to change it? How can we make a difference?

By far the easiest way to ensure they didn't run out of money was to tell them they needed to work for longer. Instead or retiring at 60, they'd have to plod on to 65. Of course, that was not that attractive an idea. 

In our planning session we talked about the "key events timeline" (when things are going to happen), income, spending, assets and liabilities. By changing each of the variables, we can change the outcome and through this process, we were able to come up with a plan which meant they could retire at a reasonable age, provide some help to the children and still have some money left for some good holidays. None of this is rocket science but it is just so, so important to have some sort of plan.