Hello and welcome to Insightful Planning with Astute. I’m Elliot Unsworth, Head of Client Proposition at Astute Private Wealth, and I’m excited to share with you a success story about how we helped a client navigate the journey to retirement using cashflow forecasting software. Let’s dive in!
Mary has been a client of ours for a number of years now, and her financial plan was on track; she had always planned to retire at age 67, and her plan was geared towards achieving this aim. However, one year, when Mary came to see us for her annual review, she was adamant that she wanted to finish work earlier, at age 60. This year she had suffered a bereavement in a friend of hers who had gone far before their time. In addition, Mary had been on a wonderful holiday to the Far East, and a combination of these experiences made her realise that there is far more to life than clocking in for work.
Of course, now only being 5 years away from her planned retirement age of 60, Mary felt uncertain about whether she could afford to retire comfortably. She had worked hard throughout her career but wasn’t sure if her savings and investments would be sufficient to sustain her desired lifestyle in retirement.
As always, we started by updating Mary’s financial details into our cashflow software – her income, expenses, savings, investments, and retirement plans. We organised this information into clear visuals, providing us with a comprehensive view of Mary’s financial situation. As you will expect from watching our previous videos, we talked to Mary about the importance of making sensible assumptions about her lifestyle in later life, as we built in a reduction in the costs of living from age 80.
Let me walk you through the cashflow plan. As always, the black line running throughout the plan represents Mary’s expenditure. You can see Mary’s income, in blue, continuing for 5 years before stopping, and then her pensions, in orange, and savings, in light blue, kick in as she begins to decumulate her assets. At age 67, Mary’s State Pension becomes payable, in the dark blue.
Upon analysing Mary’s financial data, the cashflow forecast revealed some sobering news – based on her current trajectory, Mary couldn’t afford to retire comfortably. Her projected cashflow showed a shortfall, in red, indicating that her savings and investments wouldn’t last throughout retirement.
Although disappointing for Mary to see, the first marked benefit of this exercise, right off the bat, was that Mary was informed of the issue before it happened. Without proper financial planning, Mary would have left her job in 5 years’ time, blind to the implications on her long-term financial security. It wasn’t something Mary wanted to hear, but it did give her 5 years to plan.
We presented Mary with several scenarios to address this challenge. Firstly, we explored reducing expenses and increasing monthly savings over the next 5 years. This was not done by trial and error; the cashflow forecast software was able to tell us the magic numbers needed to make Mary’s plan work. If she were to reduce her expenditure by £500 per month and commit these savings to her retirement provisions, she could indeed still retire at age 60 and remain financially secure throughout her lifetime. By fine-tuning her budget and prioritising retirement savings, we projected a more favourable cashflow, indicating that Mary could potentially afford to retire comfortably with these adjustments.
Of course, simply reducing one’s expenditure by £500 per month is no easy adjustment; in Mary’s case, this represented over 20% of her yearly budget. This might have been difficult for Mary to do, and so she was open to entertaining some other ideas.
In our next scenario, we considered the option of delaying Mary’s retirement by a few years. This allowed more time for her savings to grow and reduced the number of retirement years she needed to fund.
The cashflow forecast illustrated that delaying retirement by 5 years could significantly improve Mary’s financial outlook, ensuring a more secure and sustainable retirement income. In this case, Mary would not have to reduce her budget at all, unlike the previous scenario. Working for an extra 5 years, however, was not something Mary was prepared to entertain. She did have room for manoeuvre on her retirement date, but 5 years was out of the question.
The next option was to explore Mary releasing equity from her home in later life and injecting some extra liquid cash into her plan. This could be done in one of two ways: downsizing by moving to a less valuable home, or even arranging Equity Release by way of a Lifetime Mortgage. Mary was fairly comfortable with the idea of downsizing; she did agree that her home and garden would be difficult to maintain as she aged, and she has always liked the idea of a bungalow for their convenience.
The more we discussed this option, however, the more out of favour it became. Mary did not want to find herself in a position where she had to sell her home should she change her mind in the future, or should she become too unwell or immobile to practically move house. In addition, “downsizing” does not always mean a reduction to a less valuable home; indeed, a lot of bungalows are in such demand that such a move might not free up any capital for Mary. She was also not particularly comfortable with the costs associated with a Lifetime Mortgage.
For Mary, we ended up with a compromise between the first 2 options: reducing her budget and retiring slightly later. Using the cashflow forecast software, we were able to show Mary that if she worked for another 3 years, instead of 5, she would only need to reduce her budget by £300 per month instead of £500. As it happens, Mary’s car lease arrangement was coming to an end, and she had been thinking about exchanging her Range Rover for a little “run-around”, which would generate precisely these savings, even more so when considering reductions to insurance and fuel.
We were also able to show Mary that she could either delay her retirement by 3 years or work part-time for 5 years, which was palatable to her. In fact, she did wonder whether the route to take was to finish her current job at 60 and then move into something completely different that she would enjoy more for a few years, whether part-time or full-time. Mary actually ended up giving up her stressful job as a team leader for a well-known bank and took up a part-time position in a care home working 20 hours per week for, as it turned out, just about 4 years. As we reviewed Mary’s plan year on year and some other factors changed, she ended up not having to work quite as long as she originally thought.
Through careful analysis and strategic planning using cashflow forecasting, we were able to guide Mary toward a confident retirement plan. By exploring various scenarios and taking proactive steps, Mary now had a clear path to retirement security and peace of mind.
If you’re facing similar retirement concerns or want to explore your financial future, don’t hesitate to reach out. Our team at Astute is here to help you achieve your retirement goals. Thanks for watching!
