Let it grow….

I have my own small allotment area locally that brings me great satisfaction. I took up this hobby for multiple reasons but mostly to learn how to grow my own vegetables/fruit and a place to go and relax.

At the very start, I accepted that mistakes would be made, that sometimes things wouldn’t grow or go the way I had hoped. I also accepted that I wasn’t completely in control of how to nurture the garden (like the weather, pests etc).

I also made a conscious choice to allow my allotment to be relatively imperfect. Unlike many things in life (I can be a perfectionist), I don’t get stressed about weeds growing in some parts, or mud in others. If something isn’t going right, I am not afraid to start all over again. The journey is one that I just accept as it is.

I had planted a few drills of potatoes earlier this year. After I returned from holidays the stems of them looked like they might be dying or suffering from blight. The area around the potatoes looked grim and I thought I would be digging up a load of rotten potatoes. Well, the good news is when I dug them up, they weren’t just healthy, they were massive and bountiful.

Well, if you apply the same thought process to pensions, sometimes people feel their pensions are in a bad place if the value has gone down (particularly after a significant drop in value). But once you are not digging up encashing your pension, it doesn’t necessarily mean that you will be getting a bad return. It is important to remember that neither you or me or pension companies or investment managers are in control of the factors that influence fund performances. We can only try to navigate the conditions as they arise and hope that we end up with healthy spuds returns at the end of our journey.

There is also another element of pensions that I feel applies here. People who have a basic understanding of investments (where values can fall and rise, but usually over the long-term, pension managed funds do better overall) can usually accept that there are factors beyond their control. Things like pests inflation and weather interest rates can be very difficult to foresee but panicking after these events usually leads to bad decisions being made.

If you can accept that the journey to and after retirement has good/bad weather during that timeline, you stand a better chance of allowing your garden pension to recover in the bad times.

Steps in creating a Personal Budget for 2023

When I first started out in the financial services industry, the primary role of a financial broker/adviser was one seen as somebody who basically sells products. One who might help you set up something you need or want like a pension, savings plan or some sort of protection policy. Quite often people would take these products out as they knew on some level they should have them, but they were quite often not completely sure of what the benefits these products would provide them or their family, if needed.

More recently, the role of a Financial Broker/Adviser is migrating to one that’s more about providing information, education and advice on the options for clients and working with the client to come up with a plan to prioritise and make sure they have the correct provisions specific to them and their needs.

Quite often, people approach me to do a financial review because they are in some ways unsure of how much money is coming in and going out, so they are unsure it if there is any room to amend their finances. If there is a combined income of anything greater than €80,000 coming into a household, a full financial review can be extremely enlightening.

One of the worst things in life, is the absence of knowledge on something, so one suggestion I suggest to people is to start the process yourself. Start thinking and discussing your goals in life for the short, medium and long term.

You should then start looking at what’s coming into your household and what’s going out of your household. With the availability of bank apps it is getting easier and easier to track our spending habits so there are less excuses now to keep putting it off. Try and focus on areas you can start to make savings. Simple things like changing utility bills and even reviewing your current mortgage rate can make significant savings.

Set out a plan and try to adjust your habits to fulfil that plan. Review it regularly, at least anytime there are significant changes in your personal and/or financial circumstances. Some people prefer to do it themselves and some prefer to have help with getting this process started, so they come to me for assistance. If you go to https://www.drumgoolebrokerage.ie/planning you can get an idea of the cost of the service and kind of process involved in doing short/medium and long term financial life goals.

Case Study – Sell or Stay Put?

I recently received an enquiry from a couple who were interested in conducting a review of their finances. They were very aware of their current situation but wanted to see what the financial future would look like in two different scenarios. They have a rental property and a home property, both with active mortgages.

Their aim was to see what the future would look like financially if they

1.    Kept the rental property, continue to use the rent to pay the mortgage and eventually have the rental income as a profit in later years

or

2.    To sell the rental property and use the proceeds to clear both mortgages.

The couple inputted their incoming and outgoing funds through our secure online financial planning portal, along with their savings / assets / liabilities and their objectives. As part of their objectives, they had also hoped to factor in starting a pension plan and to continue regular savings.

There were pros and cons to both keeping and selling the rental property but, I was able to show the various outcomes using the graphs in our planning system to show how life would look financially up to retirement age and into later years, depending on which choice they made.

In their feedback, they said that being able to see this information and to see its impact it would have on their lives, helped them to make the correct decision for now and into the future. They can also fulfil the additional objectives that they originally listed and know that they will be financially secure.

Since I first began providing this financial planning service, I have seen that no two people’s situation is identical. The system and the process can be used for many different purposes and outcomes but at the end of the day, it is providing people with peace of mind and confidence in their decisions.

There is a once-off fee and a simple three step process to get started, should you wish to carry out a financial review. Following this, you decide what step to take next. This process will, at the very least, be an education to anybody who has no short or long-term financial strategy for retirement or savings needs.

Reviewing Your Finances

Do you ever imagine what you would like to do in retirement or when your mortgage is paid off or even to retire earlier than you thought? Or, perhaps you are even just curious as to how your finances look right now?

Some questions and comments I regularly hear when I meet people for a financial review:

>  I know I should save into a pension, but can you explain why it’s better than saving into a savings plan?

>  What will my pension pay me at retirement?

>  I am in my 50’s… is it worth my while starting a pension?

>  Is it true I may be able to drawdown my pension when I am age 50?

>  I am self-employed, can I protect my income if I am unable to work due to illness or injury?

>  I have pensions from a previous employment, can I get access to them on any level or what can I do with them?

>  I think I have mortgage cover, but I do not know what it does, can you explain it to me?

>  Should I pay more towards my mortgage and if so, what change will it have on my term and interest payments?

>  I don’t understand how a life assurance policy payment affects me if my partner dies.

>  What is the difference between Leaving Service Options and Retirement Options?

Should a person wish to avail of this financial planning service, it involves a once-off fee and a simple 3-step process:

1.    You will receive a link to a budget planner where you fill in your personal and financial details. This is a comprehensive budget and will take up to an hour to complete.

2.    You submit the planner and I review and prepare recommendations and advice.

3.    We meet to discuss the results of your budget, your priorities and how you can better manage your money from a savings / pension / life assurance perspective.

Following this, you decide what step to take next. Having control, knowledge and confidence in making financial decisions can provide peace of mind. Either way this process will at the very least be an education to anybody who has no current strategy for retirement or savings needs.

Cashflow Planning

The heading makes the task sound a bit boring, and slightly business-like… but the actuality of this term is something we all do in everyday life! Each month, most of us will have bills to pay, maybe a mortgage/rent, household utilities, insurance…followed by food/clothing bills, savings and hopefully some funds to put aside for a social life or something nice to enjoy as a reward for our hard work. This short-term planning is an important and smart habit to have and can help us be prepared for any unexpected bills or events that may occur along the way.

A secure online financial planning system we use for creating financial reviews can help with the long-term cashflow planning. It allows safe access to a portal where you input your expenditure/liabilities, savings/income and most importantly, your objectives now and further into the future. The more information you can input, the clearer the picture can be for your financial adviser and the more accurate the recommendation. It helps to highlight any areas where you may need to perhaps direct funds towards protecting yourself and your family or maybe towards saving for big life events such as starting a family, college fees, buying a property or preparing for life in retirement, to give some examples. Or maybe you have a dream of cruising around the world and want to figure out how you can make it happen!

Although this system helps identify the areas you need to focus on and it is planning for the long-term, nothing is ever set in stone and life can change in a heartbeat. The results and graphs can show you various scenarios throughout your life and the impact they may have on your finances.

Once we provide the results and recommendation, it is up to you to decide on the next step. As life can be ever-changing and unpredictable at times, we feel it is important to review your cashflow status every one to two years or should your circumstances change. So, as you have your monthly planning habits, an annual check-in on your cashflow plan will help give you peace of mind knowing you are using your money wisely and as best you can to achieve your goals.

Apart from mapping out a financial plan for the future, it is also a good opportunity to review any existing life policies or pensions you may have. Once you give signed instruction to a provider, your adviser can contact the life and pension companies on your behalf for further policy details. If you would like to see more information on cashflow planning, just visit www.drumgoolebrokerage.ie/planning.

Turn a savings pot of €120,000 on deposit, into €200,000 in 5 years...

Following on from planning for your retirement in last month’s article, I will give an example of how you can really take advantage of tax relief to grow your savings. The following example is theoretically possible for many people, subject to certain revenue guidelines and depending on what pensions you already have accrued.

I will use an example of a person aged 60 who may consider this proposal, for the purpose of this article. They either have no pension savings or are looking to boost their pension pot as much as they can before retirement. I am going to assume they are currently on a salary of €100,000 and are paying 40% income tax on more than €40,000 of their take home income. (for a married couple with one/two salaries, the income tax rate may differ).

Salary subject to 40% Tax Income tax @ 40% Income in pocket

€40,000 €16,000 €24,000

·         In this example I have not included PRSI / USC or any other expenses/benefits, this is just to highlight income tax relief potential.

In this illustration the “income in pocket” portion is the income you will be receiving into your hand after income tax has been deducted.

Say this person has substantial savings on deposit, for example €120,000 sitting in their bank account. We know that €40,000 of their annual income is only worth €24,000 into their hand after they pay income tax.

If you pay into a pension, you get tax relief at your standard rate (you do not pay income tax subject to revenue limits). So, for 5 years, this person could put €40,000 per year from their income into a pension. Their take-home income would decrease by €24,000 but if needed they could subsidize it (if they want) by taking funds from their €120,000 savings (€24,000 x 5 = €120,000).  After 5 years they would end up with a pension pot of €200,000 at 65.

At 65 you could have €200,000 in your pension but since you received €80,000 (€16,000 x 5) in tax relief it only cost you €120,000 to get your pension to €200,000. For a self-employed person, the savings could be even greater as they may have to pay over 50% tax (PRSI/USC) on money drawn down from their company. They may have the option of putting in a company contribution of up to €200,000, which may have only been worth €100,000 in drawn down income.

In the next article I can look at the options you would have with your €200,000 pension.

You can retire today, what are you going to do?

I recently spent 2 hours going through a financial plan with a couple who are planning on retiring over the next few years. They have substantial savings in pensions and in the bank. They wanted to get an idea of how they might manage financially post-retirement and look at how some scenarios (new car, long holiday etc.) might affect their savings.

One thing I would like to point out is that these are new clients and they had built up their savings and pensions over a long period of time. They had already done a superb job building up their retirement nest egg, but they came to me to see what their options were and if they had enough to fund a comfortable lifestyle in retirement.

One question asked was “I was just wondering if based on our existing savings and pensions, can we afford to retire today if we want?”. So, we discussed what they have planned for retirement, what they roughly might need for a comfortable standard of living and it transpired that they could in fact afford to stop working today. In return, I asked them “Is there a reason why you would choose not to retire?”.

We then discussed whether they should try to grow their substantial savings which is currently sitting on deposit. I discussed the pros and cons of investing it (inflationary risk, negative interest rates) but also clarified that in their case, they actually didn’t need to invest the money.

We also discussed potential inheritance tax and I showed them an alternative plan that can cover the tax liability their children may accrue later down the line. The best part of this particular type of plan is the flexibility to change if their situation changes and the option to cash it out after a specific period of time.

If you are retiring soon and you are unsure of how life will look in retirement, you may find a financial review like this helpful. It may also help you make adjustments that could make a massive difference to what you might get from your pension. When you are in your 60’s, you can put up to 40% of your salary into your pension and get tax relief at your marginal rate.

In the next article I will show a simple example of how you could potentially make a savings pot of €120,000 on deposit turn into €200,000 in 5 years.