Our Chartered Financial Planner in Nottingham, Jane Martin, was called on to advise a well off couple considering early retirement from the world of medicine but with many questions to resolve. Continue reading our case study to find out more.
Note: This is a real life case study. Names and some other details have been changed to protect confidentiality. Picture posed by models.
The brief
I first met my clients, a couple called Mark and Lucy, in late 2020 during an introductory meeting with their previous adviser who was retiring. As many of us will recall, we held some strange meetings during the Pandemic – this one was held in the kitchen with all doors and windows open, with visors, masks and sanitiser on hand.
I had an overview beforehand from the previous adviser: Mark, a full time GP, had previously resigned from his partnership role and was now a locum GP after suffering with severe stress, Lucy was a part-time GP. They had three children – one starting university with the other two to attend subsequently over the next eight years. Mark had come out of the NHS Pension Scheme on advice, due to Lifetime Allowance (LTA) and Annual Allowance (AA) constraints and was targeting retirement in 2025 (55yrs).
Key point 1
Cashflow works effectively on a remote call. By leaving a clear picture of their future on the screen, clients can come to their own conclusions, which is powerful.
Key point 2
This planning could not have been delivered by robo-advice. It required financial coaching to address the clients’ psychological needs, while managing the underlying order of disinvestments and tax planning to make this work more effective.
Key point 3
Staying close to clients in the early years of retirement as they adjust to a new way of life has provided the opportunity to replay cashflow modelling – a great way to reassure them in the current volatile market conditions.
The case in full
| “While we had been thinking a retirement date of 2025 was as concrete as it could be, we are now wondering about the potential of an earlier retirement, say – 2023, for Mark. I'm finding work less stressful so I might be able to work for longer. What would be the implication of Mark retiring while I continue to work for a period of time? We'd appreciate your expertise on this.” |
This meeting was held virtually, which worked well for this case. One of my learnings from 2020 was that cashflow modelling – where clients can see their retirement cashflow on screen – works especially well via a virtual appointment as there are no logistical issues trying to huddle clients around a small screen. It’s a more effective use of time, enabling complete focus and maximum impact.
The ice was re-broken instantly on this call as both Mark and Lucy appeared with moustaches and a sunshine background on screen following an earlier Zoom hijack by their children! After the ‘IT issues’ were hastily resolved, we moved on to discuss their aims; both in the shorter term, most crucially their retirement plans; and in the longer term, where I discovered their goals were to buy a campervan, and get their children through university.
To tackle these goals, I prepared different cashflow scenarios starting with Mark retiring in 2023 and Lucy joining him in 2025. The scenario showed that their retirement would be comfortable even with a stress test – assuming the worst historical drawdown for their risk profile.
Their next question was, if this looks okay in two years’ time (i.e. 2023), what about retiring next year instead (i.e. 2022)? I had anticipated this question, and having ‘prepared one earlier’, was able to share the cashflow scenario and leave the graph on the screen whilst the clients absorbed the good news, that yes Mark would be able to retire even earlier than their previous ‘early retirement scenario’.
It is usual for a client to carry on working for a bit after this ‘aha’ moment, and this was once described to me as being able to go to work each morning with a spring in your step, knowing you do not have to be there. Mark and Lucy absorbed the news over the following week, and then Mark sent me this message the following Monday morning:
| “Thank you for the meeting on Friday, you gave us a lot to think and talk about! I’ve been saying that if I could retire tomorrow, I would do, and now it is possible. I’ve had to take a look at what I really want and how it would affect me and the family. Having considered the implications, I have decided to retire completely from medicine this summer. I am booked to work up until the summer holidays. Lucy has plans to continue work for the time being.” |
The important thing for Mark and Lucy was being able to visualise their future with certainty. Enabling this financial wellbeing is what makes my job worthwhile.
How did we make this happen financially?
While some cashflow systems are better than others, cashflow modelling remains a priceless advice tool, but there is no substitution for the financial planning that comes next.
Mark and Lucy had various financial plans in various places – the sum of which allowed Mark to retire early. The order in which these plans were taken, and the structure of the underlying assets, became crucial to the outcome.
Managing Mark and Lucy’s assets in the most tax efficient way left more money in their pot. To do this, we used projections based on risk profiles and target annualised returns, which identified that control over these investments was necessary. I have never found a more compelling reason for consolidation. As clients move towards a targeted goal, the ease of access to valuations and moving towards one investment strategy becomes so useful. To be able to review your clients’ cashflow forecast at a review meeting, or because of a life event at the touch of a button and show the clients how this may or may not change their plans is so effective and efficient. Having to get valuations from many different sources at this stage, means the moment would be lost. Of course, this is only viable providing no other valuable benefits would be lost as a result.
The clients held an overall desire to invest for a more sustainable future taking ESG factors into account not only for themselves, but for their children and the idea of ‘doing good’ using their investments appealed, whilst supporting their intergenerational planning needs. At the time Mark and Lucy held an investment in ethical funds. In the past they had been told that this type of investing was ‘risky’, so they did have some concerns. We went onto discuss developments in sustainable investing since they had received the earlier advice, and also explored if there were specific areas they wished to exclude or include. They decided their needs were more generic and moving their investments to an ESG portfolio (as well as switching up a few household products!) would be another way of contributing towards their family’s future wellbeing as well as wealth.
Looking at the order of disinvestment and tax implications, they had three different OEIC (Open-Ended Investment Companies) plans, and Capital Gains needed to be managed and shared amongst them to realise these assets to provide their income over the next couple of years. This did engender more meetings and more planning over the first couple of years of retirement; however, it proved useful as it became obvious that the clients needed a bit more reassurance that they were still on track despite the market volatility.
This also threw up an interesting psychological issue with taking income in retirement, one I have come across before, which was that Mark felt ‘wrong’ spending capital initially after the first OEIC was disinvested. This was because, to provide the first six months’ income, Lucy was bringing in a salary and, for the first time since university, Mark wasn’t. An interesting dilemma that we discussed. The solution was to disinvest the next OEIC into cash but keep it in situ and pay it out monthly. We haven’t repeated this for the third plan as Mark has subsequently adjusted to the situation.
Mark and Lucy will start to draw income from ISAs in the next six months, and this will take them through to age 60 when NHS Pensions and lump sums will replenish the cashflow. They have other pensions, which they could draw on before, after age of 55, initially albeit with consideration to timing due to Mark’s potential Lifetime Allowance charges – although this may be one area that becomes more straightforward, thanks to the recent Budget.
What happened next?
Nearly two years on from Mark retiring, Lucy is still working part-time as a GP and they are very much enjoying the campervan, going to gigs and visiting family who are far and wide, whilst retaining their freedom. Lucy would now like to consider retirement three years earlier than planned. This year’s annual review replayed the cashflow modelling both with and without this new scenario. Despite volatile markets, this could be possible but ‘comfortable’ was not the word I used. Assets would be low when Lucy reaches 59, although replenished comfortably at age 60. A stress test at the worst historical drawdown rate for their risk profile was also included.
The sight of the graph and a timely hover over the depleted value of the funds was enough at this stage for the clients to draw their own conclusions – early retirement for Lucy would be achievable but uncomfortable. Compromises would be required and therefore, Lucy felt she could go back to her surgery with the adage that ‘I am working for holidays’. She also decided that if it became unbearable and the situation affected her own health as it did with Mark, then those compromises would be made.
Reproduced by kind permission of Financial Planning Today.