Wealth Modelling – Income Protection

March 20, 2012

What would happen to you and your family if you became ill and were unable to work for some time?

We are able to tell you how this scenario might play out with our wealth modelling capabilities.

In the example below I will demonstrate how the Example family’s cash flow and liquid assets are affected. This particular Mr Example is the sole breadwinner for a family with three children. There are a multitude of different scenarios but this one allows me to illustrate the simulation effectively.

The details:

Mr and Mrs are 41 with three kids at primary age. Mr has a salary of £80,000, they have cash savings of £40,000, investments of £50,000, he has a pension fund of £50,000. They have a house worth £400,000 with a mortgage of £300,000. Annual expenses are £53,000 including extensive mortgage repayment. Various events such as university fees and expected wedding payments are scheduled into the plan.

The scenario:

Four years down the line Mr falls meaning he cannot work for two years.

From the cash flow chart we can see the savings and investments are called into action and dry up before the second year is out.

From the liquid assets chart we can see again the savings and investments drying up (orange) leaving the pension (brown) left and this cannot be touched. Note also the implication on retirement: liquid assets are £300,000 less than they are in the top chart at retirement age, and the ultimate effect at mortality is considerable.

Income protection cover typically pays up to 75% of your income in situations like this. Please consider your own situation and how your planning might be affected in the event you couldn’t work for a period of time.

This is one of the many scenarios we consider when producing a client’s wealth management plan. If you feel your planning would be seriously affected by an unexpected illness, then please contact us.

 

Malcolm Stewart

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Cash flow modelling and utility bills

June 10, 2011

Whilst working with a client this morning and using our Voyant cash flow process, a couple of very interesting points where raised.

Our client noted that this approach of getting into the real detail of his income, expenditure, assets and liabilities then testing different financial scenarios was the only way to plan. He felt that this was a serious way to approach his Wealth Management plan and it was the first time he felt fully involved in the process.

During the meeting, he noted that since we last spoke a few weeks ago, his monthly payment for electricity was to double.

It’s not been a good week for the majority of Brits as we continue to be faced with ever higher costs across a whole range of goods and services we need on a daily basis.

Clearly our client wanted to factor in this increase in his monthly expenditure and for him knowing what his financial picture looked like, good or bad, was infinitely better than not knowing.

From the point of understanding the effects of increased cost and from the peace of mind that comes with knowing you’ll be OK financially, cash flow modelling is such an important part of a Wealth Manager’s process.

We find that using this approach allows clients to better understand their financial circumstances “in the round” and avoids falling into the specifics trap and confusion over jargon, policies and industry-speak.

Take Voyant away from me now and I’d struggle to do my job.

As we continue to live through these tough economic conditions the value we provide to clients in managing their cash flow models becomes even greater.

Please call us today and we’d be delighted to demonstrate how our Wealth Management Experience, including cash flow modelling, can put you firmly in control of your financial plan.

Roland Oliver

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The fundamental need for protection

June 7, 2011

Reading an article in the paper the other day reminded me that one of the most basic functions of my job is in ensuring that clients are adequately protected with life and critical illness cover. This is arguably the most important but often the least appreciated part of my work.

We all have stories of untimely death or serious illness and how families been devastated but have survived because of having financial protection in place.

I’m not going to go into all the details of what plan, who with or what type of cover at this stage but I am going to point out some areas that must be addressed.

I will not be alone in noting that clients have a reluctance to paying for something “they may not need” and tend to try and talk the cost of life and critical illness cover down to a budget.

We use Voyant cash flow modelling to determine the actual financial cost of someone dying early or suffering a critical illness which tends to bring some serious reality to the levels of cover needed.

Often clients will have some protection in place (flogged by a bank in many instances) which the level of cover bears no resemblance to the actual level of risk. There are a lot of fans of nice round numbers out there and clients are usually at a loss as to why a particular level of cover has been arrived at.

Establishing with clients the real cost of early death or serious illness by more rigorous methodology is paramount and the costs of providing this cover are then seen in the right context.

I find that people do understand the need for cover and are much happier to have the right level of protection in place once they see the real amount of money required to make sure their family will be financially protected if the unthinkable happens.

Once we have the right numbers established, then using the appropriate trusts to ensure swift dispatch of any monies in the event of claim should be a given.The option of using Relevant Life policies were possible also adds a very welcome 20% corporation tax saving on premiums.

So to summarise, don’t leave it to chance; make sure the amount of cover is relevant to the level of risk and get the proper amount and type of cover you need.

If you need us to give you a more accurate figure as to how much cover you might need, contact Malcolm Stewart our Voyant guru on 0131 273 5202 and he’d be happy to help out.

Roland Oliver

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