Karen is about to turn 65 and retire. She is single, has three grown up children (age 30, 32, 36).
Karen has enjoyed a successful career, working for Boots before running her own optician business from the age of 50. She has agreed a management buyout for the business which will see her receive £250k over the next 5 years. Karen has £50k in savings and a loan of £25k.
Karen has two frozen pensions, which she knows little about, other than she paid into them for around 30 years when working at Boots. Karen already receives a State Pension of £8k p.a.
key client considerations2
Karen would like advice on her pensions and is unsure if she can maintain her current lifestyle in retirement. She tends to spend all her income and enjoys a comfortable lifestyle. She would also like to upgrade her car.
Karen would also like advice on what to do with the monies she will receive from the sale of the business, she appreciates the bank offers little in the way of interest.
She is keen to help her three children financially as two are in rented accommodation, and one has a young family.
We reviewed Karen’s circumstances, income & expenditure. This helped us build an understanding of the income she would need in retirement. We agreed a retirement income target of £36,000 p.a.
Boots confirmed Karen has a deferred final salary pension which will provide an income of £17k p.a. plus a tax free lump sum of £51k from age 65. Karen had also been paying into an Additional Voluntary Contribution (AVC) pension with Prudential. To her amazement, with some investigation we confirmed the plan is worth £100k.
Following our discussions, we agreed Karen should use her Boots pension tax free cash lump sum to repay her loan and buy a new car.
We recommended Karen should draw an income from her Prudential AVC pension of £5k p.a. and use £6k p.a. from the business sale proceeds to meet her remaining income shortfall.
We explained to Karen, by investing some of the proceeds from the sale of the business she could make her income last longer. This would also mean more monies could be passed onto her children now, and on death.
Our advice has delivered Karen the income she needs in retirement, ensuring it is sustainable throughout her lifetime.
Using our cashflow modelling software we showed Karen she could also afford to upgrade her car and gift £30k to each of her children over the next three years.
Building a financial plan has given Karen the confidence to enjoy her retirement without financial concerns.
We agreed to meet for a financial planning review every year to ensure Karen remains on track to meet her objectives.
We also highlighted the need to monitor Karen’s inheritance tax position and to put in place a life insurance policy to cover her Inheritance Tax liability.