Case Study: Self Employed Professional

Tom and Mary Collins

Tom and Mary came to Curran Financial Services looking for some general advice around their finances. Their profile, and associated issues were:

  • Married with 3 children
  • Tom is a self employed Dentist and Mary is a civil servant
  • They have their own home and two investment properties
    • They do not know the interest rates they pay and are finding they have to subsidise the mortgage costs as the rent does not cover them fully.
  • Tom has a state pension scheme and has been advised to start an AVC.
    • She doesn’t know if its suitable for her.
  • Tom puts money into a pension scheme every year on the advice of his accountant
    • He has no investment strategy and doesn’t know funds he is invested in
  • They put money aside for their children’s education
    • They are not sure what interest rate they get from their bank account and do not know if what they put aside is enough for the childrens education.
  • They have a number of life assurance policies, attached to the properties and taken out on the recommendation of the bank when getting the mortgage
    • They do not know how much either would need in the event of the death of a spouse.
    • They were unsure as to what protection is available in the event they cannot work.
  • They do not know their attitude to risk, but think they are quite adventurous

On receipt of the above information (gathered through an intensive question and answer session), Curran Financial Services took it away and prepared a Financial Plan for the Collins. This plan was presented in two parts.

Part One: Spring Cleaning / Current Needs

Before looking at their future goals (i.e. Financial Independence) it was necessary to examine Tom and Mary’s existing financial situation under a number of criteria:

  • Suitability
  • Cost Effectiveness
  • Performance

The following recommendations were made as a result:

Pensions:

  • Tom’s existing pensions were transferred into one single, Self Administered Personal Pension. With a reduced annual management fee this alteration alone looked to save Tom €1000 per annum.
  • We calculated that Mary would be eligible for full tax relief on an annual contribution and therefore set up an AVC PRSA with minimal charges and flexibility over investment decisions.

Savings

  • We discovered the rate payable by the Collins’ on their deposit account and found that because it was a ‘Demand’ account (with access every month), the rate was less than 1% per annum.
  • Because we prioritise liquidity for savings, we were unwilling to recommend a fixed term account. Instead we found am investment platform for the Collins’ that gave them access to a suite of Government Bonds and equities, providing security, growth and liquidity.

Life Assurance

  • The Collins’ life assurance was totally unsuitable for their needs. They had Mortgage Protection on their investment properties, but this was owned by the banks.
  • We cancelled the existing, expensive plans and replaced them with policies specific to their family needs. The correct cover was calculated based on their income and the ages of their children.
  • We discovered that while Mary had income protection through her employer, Tom was exposed as a sole trader. We put in place an income protection plan for him to ensure that in the event he was unable to work due to illness, his salary would continue.

Mortgages

  • Tom was facing a potentially significant problem with one of his loans, due to come off an interest only period and back to full capital and interest repayments, which would have seriously affected his monthly cashflow.
  • We accompanied Tom to his meeting with the banks representative and insisted they present some alternatives for repayment. After extensive negotiation we were able to agree on a plan that satisfied the bank and was affordable to the clients.

Part 2 – Future Planning

Targets

  • We discovered that the Collin’s have a current NET ASSET VALUE (that is the value of all their assets minus all liabilities, not including their principal residence) of €850,000
  • They decided that their goal was to have enough money built up by age 60 to provide them with an (after-tax) income of €60,000 per annum.
  • To reach this target, they have two choices:
    • With minimal risk (i.e. using cash funds) they would need to save €30,000 per annum.
    • By accepting a medium degree of risk, an annual saving of €20,000 would be enough, though there is a risk that it may not.
  • The Collins’ decided to take the medium risk option (which was in line with their risk profile)
  • A suitable Portfolio, incorporating all existing assets, was designed and this provides the framework for all future investment decisions, whether inside or outside retirement structures, or even in their properties.
  • With their additional pension contributions and new savings plans, we are confident that the Collins’ will reach their target within the agreed timeframe, subject to regular reviews obviously.

Next Steps

  • The immediate priority was to implement the changes to the life assurance policies and new pensions
  • Once these were in place it was possible to move to the portfolio management, including sourcing of investment funds.
  • Finally the ongoing process of financial planning means that regular reviews were planned and continue.

Summary Of Case Study

  • Initially the Collins’ benefited by almost €2500 per annum in savings – as a result of re-engineered life assurance policies and cheaper pension plans.
  • In the long term however, they are likely to see benefits far beyond these initial savings, as their ultimate financial goals come to fruition.

Pin It on Pinterest

Share This

Share this post with your friends!