Every year, Goodbody conducts hundreds of financial reviews for clients and prospective clients – and the most common issues they come across focus on savings plans, inheritance and pensions.
In this real-life case study, Jennifer Graham, Wealth Management Executive at Goodbody, shares the financial plan devised for a senior executive who was unexpectedly offered a redundancy, which gave him the opportunity to reassess his career path and his financial position.
A sudden opportunity:
At 51 years of age, redundancy was unexpectedly put on the table for Kevin* who had a senior finance role in a global tech company. He saw it as a chance to slow down. The question was: how much could he afford to slow down?
With pensions, savings and the redundancy package, Kevin came to us looking for help as to what his next career chapter needed to look like to support his annual income needs. He knew that he needed a new source of income, but he also wanted to spend more time with his family. His questions centred around the following:
– Can I afford to take a 12-month career break?
– How much income would I need in retirement?
– How much more do I need to earn over the next 10 years?
– Should I pay off my mortgage before getting a new job?
The advice: focus on the pension
Central to Kevin’s wealth was his pension, which left unchecked would exceed the €2.15m pension Standard Fund Threshold, leading to a significant tax charge as Kevin and his employer had been making considerable contributions annually. We advised Kevin to take the 25 per cent lump sum now from his pension fund to free up some funds and clear the mortgage. He could then leave the remaining 75 per cent to grow in an Approved Retirement Fund (ARF). That gave Kevin the necessary headroom to take some time off as well as offering him the optionality of earning less down the line, and still retire at 60.
Then, by modelling a number of lifetime cashflow scenarios using his available assets, we were able to create a plan that also gave Kevin and his wife the following key actions to optimise their overall financial position:
– After calculating a retirement income need of €72k p.a. net, we established Kevin’s earnings from any new job needed to be in excess of €150k p.a. which served as a great guide as Kevin considered his next steps career-wise.
– Looking at Kevin and his wife’s estate, we also estimated an inheritance tax liability of €1m which would be payable by their two children. There are some strategic planning options for the couple to consider to offset some of this liability on behalf of their children.
– Kevin’s wife knew that she would receive proceeds from a family house sale as part of an inheritance in the order of €400k within the year, and was concerned about inflation and the cash sitting on deposit too long. It emerged that the couple had very different risk appetites (see also: How Your Personality Affects Your Investment Decisions). So, we built a moderate portfolio with a target return of 3.5 per cent p.a. which was made up of a mix of funds that reflected their combined risk profiles.
Plan to make it work for you
Redundancy can be a great opportunity or a scary one, depending on your set of circumstances. Make a plan and talk to a financial advisor to work out what might work best for you.
*Names have been changed to protect client anonymity.
Whether you’re looking to grow, manage or protect your wealth, contact the all-female advisory experts at Goodbody to discover what’s possible for you, or to request a free financial consultation at investmentclub@goodbody.ie.