How we helped a partner at a global law firm plan for retirement
Our client was intending on retiring from a law firm. We helped her put together a strategy to secure her spending needs in retirement while also meeting higher outgoings in the near term. Our work also included advice on structuring investments in the most tax-efficient way.
Our client, 57, a partner of a global law firm, is at a peak earning point in her career. With her husband, who is a retired academic, they have investments of £3m, including pension assets of £1.2m and two properties: their London home, on which there is a £700,000 mortgage and a mortgage-free second property in France. The couple have two teenage children. Our client would like to retire from the firm in two years, after which she and her husband will devote their time to voluntary causes and spend more time in their holiday home in France. She estimates her gross earnings in the next two years will be £2m. Once retired, she will receive a return of Partnership capital of £500,000, after allowing for the repayment of their loan. The couple anticipate their long-term expenditure will be in the region of £100,000 net of tax in today’s terms, excluding school and university fees for their two children.
The clients’ primary objective is to ensure they can generate enough income to provide for a long and financially secure retirement. In addition, they need to plan for a shorter-term “bridging period” with higher outgoings to support their children‘s education and the repayment of their mortgage on the London home. The client would also like to assist both children with the purchase of their first properties and if affordable, to provide them £200,000 each.
Detailed analysis, using lifetime cash flow modelling, was a key aspect of our planning work. This provides a “road map” for clients to visualise how they might achieve their financial objectives, and helps illustrate both the level of capital required at different stages of their lives and the appropriate level of investment risk. We advised the couple to make mortgage repayments of £100,000 per year from earnings over next two years, before fully repaying the remaining mortgage balance from the return of capital available on retirement from the firm.
We now provide a discretionary investment management service to this client with a “balanced” risk mandate designed to achieve returns moderately in excess of inflation over the long term. Based on conservative assumptions, this is estimated to provide the couple with the capital base they need to meet their longer-term objectives.
At the outset of the relationship, we took over the management of the couple’s existing taxable investments on an “in-specie” basis, so as not to give rise to an immediate tax charge. We advised that the majority of the portfolio be transferred into the husband’s name in order to fully utilise his personal allowance for income tax purposes thereby reducing the tax charge on the portfolio yield.
We advised our client to defer drawing on her pension fund, to maximise the tax-free ‘roll-up’ of the investment. We also advise them to ensure their wills were up to date and accurately reflected their wishes. Finally, we put in place a joint life, last survivor, whole of life policy to meet the inheritance tax liability should the couple die prematurely, which is held in trust for the benefit of the children.
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This strategy was based on our understanding of prevailing tax legislation at the time and should be reviewed on a regular basis in light of changes in legislation and personal circumstances.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
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