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, his financial position and helped him to slow down …
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, protection, 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 Kevin1 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 by?
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 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% lump sum now from his pension fund to free up some funds and clear the mortgage. He could then leave the remaining 75% 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 €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 Louise 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 appetite for taking risks. So, we built a moderate portfolio with a target return of 3.5% p.a. which was made up of a mix of funds that reflected Kevin and Louise’s 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. Contact Jennifer Graham at Jennifer.M.Graham@goodbody.ie to start creating your long-term prosperity.
1 Names have been changed to protect client anonymity.
Please Read:
For confidentiality purposes, names, monetary sums as well as any other personal details including identifiable characteristics of individuals have been changed. These case studies are illustrative examples only – they do not constitute investment or tax advice or a personal recommendation as they do not take into account the investment objectives, knowledge & experience or financial situation of any individual. Not all recommendations are necessarily suitable for all investors and Goodbody recommend that specific advice considering your personal circumstances should always be sought prior to making any investment. Figures quoted are estimates only. Past performance is not a reliable guide to future performance; neither should simulated performance. The value of your investment may go down as well as up. The value of securities may be subject to exchange rate fluctuations that may have a positive or negative effect on the price of such securities, sales proceeds, and on dividend or income interest.