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.

Once again… a time to reflect and not necessarily to act ...

Almost 2 years ago to the day the global financial markets crashed badly, as fears of the COVID brought uncertainty and fear. Nobody knew exactly what was going to happen or how long it was going to be before relative normality would resume. Well, it feels like it was just starting to get to that point and then Mr. Putin decides to invade Ukraine.

The following graphs show a prominent Global Equity (Stocks and Shares) fund during two particularly volatile event periods:

Global Financial Crisis 2007

COVID 2020

I would potentially expect a similar reaction in the markets now and indeed we are already seeing it as I type this (the day Russia invaded Ukraine). While the circumstances have changed, the same concerns apply, how bad is it going to get? How long might it last?

I wouldn’t care to predict anything at this time, nor would I cling to a mantra that “past performance would indicate a rebound”. That said, the reality is that past performance has usually shown this to be the case.

Leaving money on deposit is not exactly a perfect solution either as inflation looks to be climbing dramatically in some cases (energy prices). So, while your €100 may remain €100 in your bank account, its spending power could diminish.

In the past, the best course of action has been to “take no action” when it comes to investments when you see how the markets usually recover. This is not to say that this strategy suits all investors/clients. In some cases, it is important to take stock of what you have now and to take corrective actions to preserve your savings/pensions even when the value has fallen.

Specified Illness Cover… what is it and who can benefit?

We can often take our health for granted and may never give a second thought to what would happen to us, or our family should we suffer an illness. An unexpected serious illness can add emotional and financial worry at a tough time. Should you be unable to work due to an illness or even through the recovery stage, it would be reassuring to know that a Specified Illness policy will at the least ease the financial worry.

How does it work?

This type of cover pays you a lump sum amount if you are diagnosed with one of the specified illnesses covered on your plan. Once accepted, the cost of your cover will never increase during the term of your plan unless you choose to index your benefits or premiums or apply to increase your level of cover.

Once a claim has been successful, the lump sum can be used however you like to help you and your family cope financially during a difficult time. Some examples may include;

• Pay for medical treatment and expenses.

• Help with your mortgage or other loans or bills.

• Invest to provide a regular income.

• Make any necessary alterations to your home.

Children’s Cover

On most policies, children aged between 6 months and 18 years (21 years for children in full time education) of the life insured person are automatically covered for up to 50% of the Specified Illness Benefit at the time of diagnosis, meaning if your child is diagnosed with or undergoes surgery for one of the specified illnesses covered, you will receive up to a maximum of €25,000.

Additional Optional Benefits

You can include a ‘conversion option’ to let you extend your cover at any time without having to provide evidence of your health.

Advance payment of benefit for heart surgery – Royal London provides an upfront payment of up to €20,000 if you need specific heart-related surgery in the future.

New Ireland will allow you to add benefits to protect yourself financially in the short-term in the event of:

·         A stay in hospital (for more than 3 nights)

·         An accident which leaves you unable to work (for more than 2 weeks)

·         Suffering one of a number of broken bones

·         Undergoing one of a number of surgeries listed

Aviva have two additional benefits automatically included at no extra cost called Best Doctors® Second Medical Opinion service and Aviva Family Care (a counselling & psychotherapy service provided by Teladoc Health).

Life Assurance Cover…following Covid-19

If you’ve had COVID-19 and now want to set up a life assurance policy, you may be wondering where to start. We previously discussed the impact of Covid-19 on various protection plans and as the pandemic has evolved over the past two years, so too have the requirements for applications.

Will COVID-19 impact my ability to get life assurance?

If you had COVID-19 and did not require an in-patient hospital stay, are now back at work, and you have fully recovered with no other significant underlying condition, your application should proceed as normal. In general, people are not refused life assurance for this reason.

After having COVID-19, is there a waiting period before I can get life assurance?

The general rule in life assurance providers is that once you are one-month post-COVID, and fully recovered, you can apply as normal.

Assuming your application is accepted at standard rates, you will be quoted the normal premium rate for life assurance. Note, this one-month post-COVID period applies to applications for mortgage protection life cover as well.

Has COVID-19 altered the life insurance market?

Sadly, statistics have shown that COVID-19 deaths occur more often in elderly people, and people who have significant underlying health issues or conditions. Due to this information, the insurance market in Ireland and in the UK in general is more limited when offering cover to those with significant underlying medical conditions.

This means that a very small number of people who would have been eligible for life assurance before the pandemic are temporarily unavailable to access this cover, regardless of whether they have had COVID-19 or not. That said, most providers look at every application individually, taking all details into account, to see if it’s possible to go ahead with life cover.

What happens if I have a serious underlying condition, but I’m also fully vaccinated against COVID-19?

If you have a significant underlying condition but are fully vaccinated, this is considered a positive factor when applying for life assurance.

Does my occupation make a difference to my life assurance application?

Applications for life assurance cover are treated equally, irrespective of an individual’s job or career. For example, health care or frontline workers are not treated any differently due to COVID-19.

If a person with a life assurance policy has an adverse reaction to a COVID-19 vaccine and death occurs as a result, will the policy sum be paid to the beneficiaries?

Yes, they will be covered under their life policy should this occur.

Clever Investing

Let’s say you have a lump sum sitting in your bank account that you would like to invest, with the hopes of making a profit…what should a first-time investor consider when deciding on if and where to invest it?

How much risk are you comfortable with?

If you are ready to invest, consider how much risk you’re willing to accept. With all types of investments there will be some degree of risk, but some have more than others.

• Would you be more likely to choose high risk for potential high return investments, or an investment with the lowest potential loss?

•   Are you cautious or carefree when it comes to making financial decisions?

•   Are you quick to react to media or market changes?

Some tips to help with your investment decisions;

¬  Invest with a regulated company: A company regulated by the Central Bank of Ireland must always act in the best interests of consumers and comply with strict rules that help protect consumers. Your financial advisor will also be able to guide you in choosing a company and with assessing your needs.

¬  Diversification: Spread your risk across several types of asset classes and sectors to avoid putting all of your eggs in one basket.

¬  Consider volatility: Certain assets are more volatile than others. If you only invest in a single asset type (such as individual shares) you are more exposed to changes in market value for that asset type. This can demand a lot of your time to monitor the market and use your judgement as to when to sell.

¬  Choose a managed fund: You’ll have an expert investment manager at the lead who is knowledgeable about what assets across which sectors to mix, and who is actively monitoring performance and responding to market movements and opportunities.

What does return on investment mean?

A return on your investment is the potential amount you could gain or lose. A return can be positive where you gain money over the amount you have invested. Or a return can be negative where you lose money you invested. It’s important to know that unless there is a capital protection guaranteed, most investments are not protected, and you could lose some or all of the money you invested. No one can predict what is going to happen with the market. However, it is a good idea to leave the money you’ve invested alone for a while and a recommended duration of at least 5 years can give your investment a suitable time to perform.

Monthly Income in the Event of Death

This month I am highlighting a type of life cover which will provide a monthly income on death. Most life protection policies pay out one lump sum, so this policy type is designed to replace some or all, of an income coming into a household.

What are the benefits of this type of policy?

Mortgage Protection will cover any outstanding mortgage amount, which is most likely the largest monthly expenditure in most households. Although mortgage repayments are only a portion of the overall monthly outgoings a family may have, utility bills, groceries, clothing, education costs and possible outstanding loans are among the many other expenses. A regular monthly income might be easier to manage than a lump sum and would help keep the household on track.

How does it work?

In the event of a death during the chosen term of the policy, an income will be provided from the date of the claim until the end of the policy term. Income will be paid for a minimum term of two years once a claim is made even if the claim occurs within two years of the end of the term.

How much does it cost and how much cover is needed?

Let’s imagine you have mortgage protection which will clear your mortgage. You have calculated that you would require a monthly income of approximately €3,000 to compensate for the loss of earnings into the household. You want to cover this amount until your children are financially independent, so determine that you require this income cover for a term of 20 years.

Life Cover (Monthly Income) Premium (Monthly) Term

€1,500 €24.35 20 Years

€3,000 €45.66 20 Years

Sample quotations above are based on a non-smoker male / female, aged 40. Source: Zurich

 Some of the additional benefits that may be included with this cover without additional cost, can be Accidental Death Benefit, Guaranteed Insurability Option and Terminal Illness Benefit.

Paid Up Pensions…what to do with them?

A paid-up pension is a pension that you may have had with a previous employer and upon leaving employment and ceasing payments, you may not have enquired about or moved to your own name.

How do I get information about my old Pension?

In most cases you should be receiving annual benefit statements with general details (including the value) of your pension. Though if you have moved to a new address, you may not be receiving this information annually or at all. If you are unsure where to look, the company’s human resource department (or Employee Pension department if there is one) is a good place to start.

Can I bring my pension with me when I move employment?

In most cases, when you leave employment, you have several options. You are entitled to request “leaving service options” which sets out what choices are available to you. This can intimidate and confuse people but if it’s explained correctly, I find people are more confident making the decision to move their pension into their own name.

Will I lose out if I move out of the old Pension arrangement?

The only way of knowing is by enquiring about the benefits currently included on the pension plan, but in many cases, you can gain from moving your pension funds into your own name.

One of the main advantages is that you get direct access and information sent to you personally about your pension. Many people like to have complete control over their pension without having to contact a Trustee (or past employer) anytime they want information regarding their policy.

What can a Financial Adviser do for you?

Part of our job is to help people arrange their pensions together into an efficient / transparent portfolio. In simple terms this means you know exactly what you have, where you have it and when you can access the funds. In certain cases, individuals are surprised to learn they may have access to part of their pension once they reach age 50.