Dementia – Suppose I Lose It

Dementia – Suppose I lose It

Radio 4 will be running a programme this evening at 8pm, which will be a highly personal view of dementia. It features a well-known married couple – Timothy West and Prunella Scales who are interviewed by their long-time friend Joan Bakewell. The preview this morning sounded enganging, expressing the very practical, personal and real problems that anyone suffering dementia can face.

Becoming infirm is not a topic that many people wish to talk about, yet it is, in my opinion a vital part of proper financial planning. After all, the job of a financial planner is the attempt to make your money last as long as you, ensuring that it doesn’t run out. Yet we all know that should we ever require care at home or in a residence, this can be incredibly expensive and is often referred to as a “ticking time bomb” within press and political circles. One of the scenarios that I model for clients is precisely this problem and of course there are implications for ensuring that not only your Will is up to date, but also that you have Lasting Power of Attorney in place.

The broadcast promises to be interesting and is on this evening at 8pm, Radio 4, called “Suppose I Lose It”. It will be available on the BBC i-player afterwards presumably for the usual time-limited period.

Dominic Thomas

Dementia – Suppose I Lose ItDominic2023-12-01T12:39:45+00:00

Inflation rate now 1%

Today, the ONS revealed that the inflation rate has fallen to 1.00%. On the one hand this appears to be good news – prices are not rising rapidly so we dont have to spend quite as much paying for goods and services. On the other hand there are some negative issues with this too. Firstly, whatever any Government says, inflation effectively devalues and reduces debt in real terms, so a degree of inflation for any economy carrying huge national debts (like ours) is actually rather a helpful tool. Secondly low inflation means that Government doesn’t have to worry too much about price rises and attempting to offset this with tempting offers not to spend (i.e. increasing interest rates which encourages saving rather than spending). So low inflation would suggest further long-term low rates of interest, which will displease anyone with cash in the bank using it to provide income.

The main causes of the reduction in CPI (Consumer Price Index) are described by ONS as falls in transport costs (fuel, air transport and second hand cars). A little delving into the data reveals that food and non-alcoholic beverages decreased by 1.7%, clothing by -0.2%, transport by -0.2% and thet delightful category “miscellaneous” decreased by -0.8%, all essentially deflation. However costs rose 4.0% for alcoholic beverages, 3.3% for electricity, water and gas, 2.0% for health, 2.4% for restaurants and hotels. Education costs rose 10%… which I assume consists in part of University costs. So your personal rate of inflation will rather depend on what you spend your money on. If you wish to delve more deeply into statistics, here is the official excel spreadsheet link.

Personally, I would be less inclinded to reply on national statisitics for your personal financial planning. It is not that I don’t trust the figures, it is simply that they include many things that you may not buy regularly. The weighting of the “basket” of goods and services is defined by others and when planning your own finances, it is much more sensible to consider how relevant it is that education costs, new or second hand cars are as part of your normal budget…. perhaps not much, so peak at the tables may provide clues to your own personal CPI.

Dominic Thomas

Inflation rate now 1%Dominic2023-12-01T12:39:45+00:00

The One Percent

Much has been made of the One Percent of the population of late, perhaps not surprisingly many people are wondering if the economic improvement will “filter down” to them. Recent news from the G20 summit warning that the economic recovery is in jeopardy as our trading partners in Europe fail to grow (even the mighty Germany) and there is a slowdown in growth from Asia may even prompt questions about ever receiving a share of the UK upturn.

The One Percent argument is simply that the richest continue to get richer and that the gap widens all the time, or seems to. There was a programme on Chanel 4 the other week “How Rich Are You” which attempted to address a few of the issues – from bling to benefits. The most obvious and pertinent statement being that the rich have capital, the poor do not. Capital works whilst you sleep (or when you dont work). The programme had a fairly noisy audience and probably rather polarised. Interestingly, few really knew where they come in the “pecking order”… which percentile of “rich” they belong to.

Dr Faiza Shaheen presented a chart revealing the distibution of income throughout the UK. As this is TV and not a regulated piece of information, not a lot of effort was made to contextualise the numbers (which are based on earned income). The middle level of income in Britain she contended was £20,300 – middle being the median, not the average. In short 50% of people have an income below £20,300. She also used the minimum wage as a figure (£6.50 per hour x 40 hours a week x 52 weeks = £13,520). Which incredibly puts these people at about 25%, in other words, there are still about 25% earning less than £13,520, the lowest paid was £7,654. On the graphic teachers earning £32,547 came out at 75% (which was admitted to be the average teacher’s salary) which is possible, but dont forget that average includes a newly qualified teacher earning around £21,000 and will include people that work part-time all the way through to Head teachers. Doctors, which Faiza described as GPs. earning £103,000 which would place them at 97%. Richard Bacon, the show presenter then said “that means not even doctors are in the one percent”. About £147,000 of earnings places you in the top 1%

OK, so thoughts. Statistics can be very misleading. I’m not going to dispute the figures, but warn that they only report income. They do not report wealth – assets owned (property, investments, pension funds, businesses etc). We have some clients that are very income rich, but asset poor and vice versa. Whilst the figures are meant to be about earnings, taking this as taxpayers there are estimated to be 29.8m taxpayers in the UK (of a population of 64.1m).

£489.9bn Tax Paid

So here are some different statistics, which rather confirm those of the programme, at least at the higher end. In 2013-14 HMRC collected £489.9bn in taxes, about 54% of which comes from income tax, capital gains tax and National Insurance. In terms of income taxes paid, 24.1m people are basic rate (20%) taxpayers, 4.61m are higher rate taxpayers (40%) and 343,000 (0.34m) are additional rate taxpayers (45%). Yes the numbers do not quite add up, because the balance 0f 0.84m pay starting rate or savings rate tax. Don’t forget that to not all of your income is taxed at the highest rate, but only where over certain limits. Additional rate is only payable by those earning over £150,000. This would pretty-much confirm Chanel 4’s statement about the 1% (1% of about 30m is 300,000).

£172bn Income Tax Paid

Let’s look at this a little differently. Using HMRC data, Income tax alone generates around £172bn for the HM Treasury. When this is broken down further, only about 32% is generated by starting, saving and basic rate taxpayers. Higher rate taxpayer (40% tax) contribute about £66.3bn or 38% (about the same). Additional rate taxpayers (the one percent) contribute £49.7bn which is 29% of all income tax collected. In other words 343,000 taxpayers are contributing 29% of the total income tax bill.

Faiza admitted there was a huge variance of income amongst the top 1%. HMRC data bands this in 5 ranges of income and I have also shown the number of people this applies to in brackets.

£150k – £200k (122,000 which is 0.19% of population) pay tax of £7,570 million (4.4% of total bill)

£200-£500k (175,000 which is 0.27% of population) pay tax of £19,000 million (11% of total bill)

£500k-£1m (30,000 which is 0.05% of population) pay tax of £8,190 million (4.7% of total bill)

£1m-£2m (11,000 which is 0.02% of population) pay tax of £6,050 million (3.5% of total bill)

£2m+ (5,000 which is 0.01% of population) pay tax of £8,890 million (5.1% of total bill)

“One Percent” pay nearly 30% of all income tax collected

Setting aside any politics, one can see why creating an environment of even higher taxation might lead some of these people to earn their income elsewhere. As this contributes nearly a third of all income tax, politicians might wish to think carefully about this, as presumably the tax lost would have to be recouped from the 99%, which in practice is the remaining 29,557,000 taxpayers. My maths suggests that this would mean that each taxpayer would need to pay an extra £1,681.50 in tax, given that the average tax paid per taxpayer is £5,750 this represents an average increase in the amount of tax paid of 29.2%… which I doubt would win many elections. The current average rate of tax is 17.5% of income (which is only so low due to the very high number of people (88%) earning less than £50,000). If these proportions were maintained then the average rate of income tax paid would be 22.6%.

UK Population 64.1 million

This is just data, one must take care not to let envy cloud judgement. Where Governments and HMRC need to do some work is where income tax is not being paid at all (by about 34.1m people or 53% of the population). This includes abut 11 million children in education (pre-school to further eductation), there are 9 millon people between the ages of 16-64 that are not employed and not seeking work – but this would include students, parents looking after children, those that are ill and those that decided to retire early. So we have more or less accounted for 20 million people “not working” and 2 million unemployed (seeking work between 16-64 and less than half were in receipt of job seekers allowance) leaving around 12.1million kind of unaccounted for. I hope that I have demonstrated that a very small number of people paying top rate tax fund a very large part of the tax collected. It wouldn’t be inconceivable to believe that there is another 1% or even 0.5% of the population that really should and could be paying UK income tax is it?

This of course takes no account of other taxes that we pay ranging from capital gains, inheritance tax to TV licenses VAT and excise duty. So in practice pretty much everyone will pay a form of tax and this does not include local council taxes. However our national demographics are also at play here. The number of taxpayers under 65 has remained fairly constant over the years at around 24million but since 1990 the number of taxpayers over 65 has increased from around 3.1m to 5.8m. The number of additional rate taxpayers has increased every year since introduction (2010-11).

Is it really the case that only 373,000 people earn enough to pay 45% tax?

In practice, anyone that you can think of that isn’t a friend (well..maybe) but whose name you know from a variety of media outlets is probably in the 1% – everyone from footballers, athletes, movie stars, tv presenters and of course pop stars. Frankly I struggle to believe that so few people pay a tax rate of 45%. After all, whilst I accept that there are all sorts of jobs (and salaries) in the City of London, according to its own website, there are 392,400 people employed in the City of London.

In summary, most people are “richer” than they think and might be surprised to learn that if you earn £50,000 or more you are in the top 12% of earners in the UK. Who would want want to be a politician to sort this out eh?

Dominic Thomas

The One PercentDominic2023-12-01T12:39:41+00:00

Fair pay… it all adds up

Fair Pay… it all adds up

If you follow my blog, you will know that I enjoy the arts. A theme that seems to have been gently simmering in the West End has been that of fair pay and protest. There’s nothing new about these issues, perhaps just a regular and frequent part of the human experience, however I wonder whether this also reflects a sense of unrest and unfairness about the current economic world in which we all live.

In the summer I saw The Pajama Game, which is an old 1950’s musical, one with which I have a personal connection as I was in a production of it at school, so there was a sense of reminiscence. The musical (by Richard Adler and Jerry Ross) isn’t that well known but has a few decent tunes. It was largely brought more exposure due to Doris Day in the 1957 film version. The setting is a clothing factory called “Sleep Tite”. There is a dispute between “workforce” and “management” involving pay, throw in a little romance requiring a crossing of lines and you have a recipe with some dramatic tension. 1395144469-image

The political aspect of the story revolves around increasing pay, which the workers demand and the management attempts to deflect. The hourly wage rise demanded is an extra 7 1/2 cents (dating the story) and revealing its original source, the 1953 book “Seven and a half cents” by George Abbot and Richard Bissell. This provides the lyrics for one of the main “numbers” which is one of those very rare songs that includes mathematical calculations.

“With a pencil and a pad I figured it out!
Seven and a half cents doesn’t buy a hell of a lot,
Seven and a half cents doesn’t mean a thing!
But give it to me every hour,
Forty hours every week,
And that’s enough for me to be living like a king!”

The song illustrates how a small difference can multiply significantly over time, however as this is financial planning week, I ought to point out a flaw in the logic of the song, that of forgetting about inflation. The maths is “simple” in that is merely adds (or multiplies) it doesn’t calculate who this compounds over time but instead reveals what seven and a half cents extra, every hour, 40 hours every week provides – over 5 years $852.74 over 10 years $1705.48 and 20 years $3,411.96.That said, having checked the maths there are slight errors in these sums.

Presentation is everything and within the financial services world and I don’t want to make this a long post, but suffice to say that if inflation was 3% a year the sums would be rather different over 5 years $905.46, 10 years $1,955.14 and 20 years $4,582.68.The longer that income is decoupled from inflation, the less well off you are. The other point being that future money can sound like a lot more than it is in practice, or in reality – real (inflation adjusted) terms.

Today of course we have a public sector funding freeze, where despite inflation, salaries have remained at the same level. If this were to persist for many years, there would be a real sense of loss. As inflation is currently only 1.3% that means that over the last 12 months £1,000 is now worth £987, to stay at the same level of pay, income would need to rise by 1.3% to £1,013. Hence why many are getting somewhat agitated and expressing the view that their salaries are falling in real terms (they are).

The Pajama Game has now concluded its run in London. The unrest about pay increases has not…

Dominic Thomas

Fair pay… it all adds upDominic2023-12-01T12:39:39+00:00

Uncertainty is Normal

There is much in the news to concern even the most stoic of people, however without ignoring the considerable challenges that the world faces, perhaps we could take some comfort from the past, which reveals that uncertainty is normal.

I think I may have fallen for Eleanor Roosevelt (who would be 130 today). If you follow me on twitter you will have gathered that I’ve not made time of late to blog as I would like to and have taken to more tweets to remind myself and perhaps others that time…and life is short. Of course I had heard of Eleanor Roosevelt, but in truth didn’t know that much about her. I knew that she was the wife of President F.D Roosevelt and that he was a something of a Lothario. The image to the right is the movie poster for Hyde Park on Hudson, which, if I recall doesn’t even include Eleanor, but many of the women in F.D Roosevelt’s life, the image is rather pertinent and could be her obscured by his position – though in practice she wasn’t and even publicly disagreed with some of his policies.

Eleanor was, by all accounts a brilliant First Lady. Anyway, one of the quotations I came across for her was this one:

“You gain strength, courage and confidence by every experience in which you really stop to look fear in the face. You are able to say to yourself, “I have lived through this horror. I can take the next thing that comes along…. You must do the thing you think you cannot do.”

I am probably guilty of looking at life through a rather narrow lens, one that tends to see the life example with a financial planning element to it. Today as I write the markets are beginning to react, as they always do, to uncertainty in the news. This time it is the anxiety about the spread of the Ebola virus. I am neither a medic, nor a scientist and do not wish to dismiss this as unimportant, clearly it is a serious problem and one that could be devastating if some of our wildest horrors materialize. However, anxiety and bad news are the normal. We have never known the future, which frankly is probably a good thing. This weekend we could spend considerable energy worrying about any number of things, the problems on the Turkish border, Ebola, European economies, ageing populations, limited resources, climate change, war in Syria, Ukraine, Iraq, Libya… and of course I could add hundreds more.

The financial services industry often trades on the promise of security, something that even the Regulator and Ombudsman appear to occasionally believe possible. Yet in practice the security that money or wealth bring is illusory when real disaster strikes. It certainly can make life considerably easier in the comfort of a fair, prosperous society, but has little value when society collapses. Eleanor Roosevelt says:

“There never has been security. No man has ever known what he would meet around the next corner; if life were predictable it would cease to be life, and be without flavour.”

So, we do what we can. We grapple with an uncertain future attempting to make the best decisions from the choices before us and the information available. Uncertainty is normal. Market over-reaction to news good and bad is normal. Strangely, these unusual times are decidedly normal, as history reminds us for those that care to look.

Dominic Thomas – Solomons

Uncertainty is NormalDominic2023-12-01T12:39:32+00:00

Broken Promises – the pie crust promise

Broken Promises

At a recent client meeting I attempted to convey the issues regarding perception of financial advice. In the past most of my industry has lured investors with the promises of riches or security. Whilst both of these are possible to some extent, in practice they have tended to be un-bankable promises, or as Mary Poppins might say “a pie crust promise, easily made, easily broken”. Mary Poppins in mind, my industry is in need of some saving… and its an excuse to use a play on words and suggest a very good film to see “Saving Mr Banks”.

We have certainly seen our fair share of broken promises within financial services, not simply those of servicing but of delivering results. Little wonder so many have such little faith or trust in my industry. So as I am as much part of the system, I too must take some responsibility for the collective failure; indeed regulatory fees ensure that I am constantly aware of the failings of others. Together with all remaining firms, I pay towards the compensation for their failure, which certainly feels like punishment by association. So within this context of “self-awareness” I bring to your attention one inescapable truth.

You probably do not need to achieve huge returns to achieve riches or get too concerned about your security… I appreciate that there are bound to be some exceptions. However for most people, financial planning is about ensuring that your existing lifestyle continues for the remainder of our life, however long or short that may be. In short, that you have enough to live the way you do and ideally the way you would like to. The important thing is to know what return you need to achieve, not simply to “go for it”. Pause to reflect on the athlete, that trains for the 100m. He or she doesn’t simply stroll up to the race without having prepared… for months, perhaps (probably) years. There are hours of preparation in the technique, rest, diet and so on.. then knowing what is required to compete… little point if you run the 100m in over 15 seconds (still a very impressive feat).

Financial planning is largely about discipline, there is some preparation. Practice is perhaps the harder analogy, there is a sense in which this is very much a live learning exercise…so there is no real “practice”. Yet thinking a little larger, today’s personal budget control is an important prelude to one further down the track. The value that clients derive is partly from the experience of the adviser, much like a doctor, each case is new, but years of experience help provide the most effective course of treatment.. but sometimes we need to do a fair amount of research and ruling out to help inform a best judgement.

Life is uncertain, there are no guarantees… even death has its question marks. Financial planning can offer guidance, shape and focus, however it cannot provide guarantees. Here is the official trailer for the fabulous “Saving Mr Banks”.

Dominic Thomas

Broken Promises – the pie crust promiseDominic2023-12-01T12:39:30+00:00

Keep it Real

If one were to believe the media, there are many reasons for none of us to sleep at night through anxiety of our impending doom. However, whilst I wouldn’t wish to trivialise any of them, few in practice will have much impact. However for investors, there is one enemy that will do more to damage a portfolio than many other threats. That is “inflation”. This is a topic that I regularly discuss with clients, particularly someone new to our approach.

Hold cash, but not too much

Many people mis-manage their wealth by holding too much in cash or not being bold enough with their investments. I say this as someone that believes that holding cash is a good thing – wise, as cash provides liquidity – or at least it should in the normal course of life, providing for emergency funds and planned and unplanned expenses. However cash generally provides a poor return and one that few people can really afford.

The price of a cup of tea

Inflation is, at its most simple, the rising cost of living. I was reminded of this yet again on Friday as I attended the London Philharmonic Orchestra screening of the David Lean 1945 film “Brief Encounter” at the Southbank Centre. Much has changed in society since 1945 (a mere 69 years ago) particularly the days of buying two cups of tea and a couple of buns for 7 pence. I do appreciate that this was pre-decimal, but you get the point. So if building a portfolio it is helpful to know how long the portfolio needs to last, the longer its duration, the more likely the negative impact of inflation. The regulator has attempted to alert investors to this problem, by making providers quote returns with allowance for inflation. Invariably this makes the numbers look somewhat depressingly low and even negative, prompting the obvious sensible question “why invest?”.

Long-term impact

If you have our APP for i-phone, i-pad or Android, you can use it to review inflation in a specific year or over a particular timeframe. The calculator goes all the way back to 1949. I usually show investors the rate of inflation in their year of birth and then the average rate since then. Inflation has only really come “under control” since the early 1980’s as the longer-term rate remains within 2.7%-3.7% range. So for real growth to happen, investments must beat inflation, otherwise they are either simply keeping pace or falling behind. Of course investments will rise and fall in value so even in a conservative portfolio if inflation is 2% and returns are -3% over 12 months, then you are making considerable losses, over that time – however a longer-term perspective must be taken to have any practical use for investment assessment. In order to ensure the value of your pound increases, it must keep pace with inflation. To grow wealth beyond this, we are left with few choices, investment being the most obvious. A good investment experience, will provide returns above inflation, commensurate with the amount of risk associated with it (and how much risk you are prepared to take). As a result, returns that are above inflation are actually “real returns”. As a consequence, we model financial plans in “real numbers”. I believe that keeping it real is vital for any worthwhile assessment of a portfolio.

Dominic Thomas

Keep it RealDominic2023-12-01T12:39:29+00:00

What If …. It all goes wrong?

1996: Portrait of a Lady – Campion

This afternoon I met with a long-term client that really gets what we are doing for her. She is a very fit 80 year old lady with a sharp mind and a lovely sense of humour. Inevitably we turned to the awkward topic of life expectancy and discussed her family history and her opinions about potentially needing assistance and long-term residential care. We clarified her thoughts about leaving and selling her home should she require care. We also talked about her desire to help her wider family and the possibility of needing to spend money on her own healthcare. Naturally she also has concerns about the state of the world and global stockmarkets, how much should she hold in cash as an emergency fund and so on.

I do some sums, adjust her financial plan and reveal that allowing for her current rate of spending and estimated giving and medical bills, she can afford her portfolio to achieve a return of -0.51% a year. In other words, she can afford to achieve no (negative) growth and still have sufficient funds. If there is a dire stockmarket crash of 35% that doesn’t bounce back, but is simply marked as a “correction” her returns need to achieve 2.86% a year. Now nobody wants a crash and I have yet to meet someone that wants to enter residential care rather than living in their own home, but this sort of analysis and information is vital to providing peace of mind. Certainly we can adjust some of the assumptions, even the most apocalyptic assumption of a 65% crash that doesn’t recover, would mean that her investments need to generate 7.89% a year. The important ingredient going forward will be to review her plan carefully, balancing risk and reward with needs and making sure that she is within her own budget (not ours). This is the power of good financial planning.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

What If …. It all goes wrong?Dominic2017-01-06T14:40:02+00:00

Double or Nothing? Reality Check?

1993: The Assassin – John Badham

Continuing on the theme of financial planning assumptions, today the FSA have launched a consultation process on reducing investment assumptions. Taking guidance from PWC, the FSA are reflecting on advice to cut investment assumptions about future returns. Unless there is a form of proper explanation, I fear that many will be more confused and deterred from investing – precisely the opposite objective of the FSA.

Assumptions about investment returns boil down to some fairly basic maths. For example, let’s take the “endowment mis-selling scandal”. Suppose you need to build a fund of £100,000 over 25 years to repay a mortgage. Whilst there is an element of life assurance (which has a price) and investment charges, tax and commission (all of which gave rise to the mis-selling). How much you are asked (or quoted) to contribute depends upon your initial assumption. Setting aside the costs etc as mentioned, just considering the maths to build a fund of £100,000 over 25 years the following would apply.

A 5% growth rate results in £170.03 a month (total outlay £51,010)

A 7% growth rate results in £126.99 a month (total outlay £38,097)

A 9% growth rate results in £93.87 a month (total outlay £28,161)

As you can see, for many people attempting to keep costs to a minimal amount, you will appreciate why they were lulled into using assumptions about higher rates of return, particularly when at the time, the longer-term average returns were fairly similar. Sadly returns have not held up to the assumptions in the majority of cases and one might argue that the long-term economic picture has altered to the extent that lower rates of growth should be assumed. Hence the PWC advice to the FSA.

The problem is that the proposed rates of return being suggested for a pension or ISA (which have tax advantages) are being reduced from 5%, 7% and 9% to 2%, 5% and 8%. In other words slashing the projected rates 60%, 28% and 11% respectively. This is primarily because of low interest rates and low inflation, anticipated (assumed) for the long-term. Let’s take another example… building a pension fund over 30 years to a size of £1m.

Old Rate 9% = £583.31 a month (outlay £209,991)

New Proposed Rate 8% = £705.40 a month (outlay £253,945 = 20% more)

Old Rate 7% = £850.30 a month (outlay £306,109)

New Proposed Rate 5% = £1,221.46 a month (outlay £439,725 = 43% more)

Old Rate 5% = £1,221.46 a month (outlay £439,725)

New Proposed Rate 2% = £2,032.23 a month (outlay £731,604 = 66% more)

Just reflect on these numbers for a moment. You are a bright person and know that actually we have no way of knowing what the future returns will be in practice. We need to make sensible assumptions, which need to be based on experience of reality. Setting aside the problem that some investments are overpriced and some managers are rather poor, do you believe that the “average” person will interpret these figures as guidance and will simply assume that its better to give up before starting, becoming ever more reliant upon the State. It is an irony that the regulator asks us on the one hand to treat past performance as an unreliable guide to future performance, but then stipulates the rules about projections. In truth it would be more grown up to have a proper conversation about individual and personal expectations, attitude to risk and capacity for loss, but this takes time, something which also needs to be paid for. Something that will be a bridge too far for most UK investors from 2013, when their financial adviser is finally forced to ask for a fee – something that we have always done with our clients, so that they are shown the truth about money.

Oh and by the way, if inflation is 2.5% a year, a £1m fund over 30 years is equivalent to roughly £480,000 today. It is the link to inflation that needs exploring very carefully indeed. The problem with the proposed rates, is primarily not that context is everything, assuming a return of 2% when most savings accounts can provide more, will lead people to draw the conclusion that there is no purpose to investing. We will have reached the point of no return – particularly with inflation higher than 2%. Whilst having a realistic assumption is clearly sensible, without explanation, the FSA risks putting off millions of people from making provision for their future – which will inevitably be linked with ours.

Double or Nothing? Reality Check?Dominic2017-01-06T14:40:02+00:00

Financial Planning – Life and Death?

1937: Dead End – William Wyler

Predicting the future is a pretty difficult task. There is a degree to which we probably all hope that someone knows what is going to happen, though of course we actually know rather better in practice. The media seem to love speculating about tomorrow, indeed the more I watch the output from media outlets, including the BBC, I’m struck by how much of the “reporting” is no more than speculation, obsessing over what might happen, rather than seeking to clarify the choices and consequences.

Financial planning has a degree of future prediction about it, which for some can feel all too like crystal ball gazing. Cards on the table, I don’t believe that crystal balls have anything to tell us about the future. Indeed one might suggest that more can be revealed by someone’s body language, tone and general demeanour about how the future is likely to look for them, something that an accomplished “reader” can interpret to their own advantage.

However, financial planning is about attempting to address estimates about the future. Starting with the end in mind, some very awkward thoughts about when you die (not a terribly British conversation) is going to frame your financial plan. None of us know when this will be (unless we are determined to end our own life). This is perhaps the most significant assumption of all when it comes to financial planning. Assuming you live to 100 but then only living to 85 has implications. For example, your savings were assumed to be required for a further 15 years, which may have meant that you couldn’t spend, give or have quite as much as you would have liked to have done. As your income was assumed to be needed for a further 15 years, perhaps your investments were assumed to need “to work” harder than they actually had to – by which I mean taking more investment risk for a higher return. Perhaps out of concern for a long life, you deferred some spending that was actually rather important to you. As you can see – lots of questions and resulting choices from a single assumption about when you die.

This is why a great financial planner will not only raise the issue (most don’t seem to) but also explore the implications with you and revisit the agreed assumptions each year as part of the review/refocus process. Starting with the end in mind is vital when designing your financial plan. I wouldn’t want to be a guest at your 95th birthday party if we had only planned for your money to last until 95. So think carefully about your assumptions, as many have said, to ass-u-me, can make an ass of you and me. Of course, living each day as though it were your last may have other implications too.

Financial Planning – Life and Death?Dominic2017-01-06T14:40:02+00:00

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