For many people their first exposure to financial planning is something they’ve read in a newspaper, or seen online. It’s a great way to get a low pressure exposure to understanding what sort of questions financial planners can assist with.
The trouble with financial planning in the media though, is you will often have to conform to the requirements of the publication or format that you’re working with. Thorough financial advice is considered, and involves considerable back-and-forth with your client to understand fully their point of view and what they’re trying to achieve.
It probably won’t surprise you to learn that the four paragraphs allocated to a newspaper column won’t always achieve this standard of thorough financial planning! There was a really good example of this in the Sydney Morning Herald’s Money section, with respected adviser Noel Whittaker. I’ve posted the question and a comment that I’ve added below so you can understand what I’m talking about. What this means is if you do have a question, you really should try and book a face to face with a financial planner to explore that further, as a response in the media will necessarily miss many of the subtleties of your personal situation.
Original question & answer
I am 50, earning $59,000 gross yearly, planning to drop to 20 hours a week from 1 January. My super is worth $100,000 and includes death and TPD cover of $500,000 each, plus income protection of $4000 each month for two years. My wife is 49, not working, and has $46,000 in super including the same death and TPD cover.
We own our house outright, worth $420,000, and have $870,000 in the bank earning 3.85 per cent. We have tried the bank’s financial planners but nobody gave enough confidence to trust them on advice. How should we plan for a return of a living expense of $77,000 per year including the kids’ education costs? We are willing to pay adviser fees but need someone we feel is going to do the right thing for us, and is not only thinking of commissions.
Unfortunately, $870,000 is not going to produce anything like the $77,000 you require. Also, neither of you can access your superannuation at this stage. Even if the money was invested mainly in shares, you would still be way short.
As I see it, the only solution for you is to increase your hours, or for your wife to get a job. I would certainly not let a bad experience with advisers put you off getting advice.
I’m a financial planner and regular reader of your columns and you provide great, simple information to assist people. I wonder in this case though if the writer is not a lot closer to their goal than you have implied.
$870,000 of capital outside super and $146,000 inside super definitely won’t generate income of $77,000 every year for the lifetime of a couple currently 50 & 49, but there are a few other factors that should be considered.
The writer has said that he will reduce his work to 20 hours per week. He doesn’t specify his current hours but does give earnings of $59,000 a year, so if we assume that’s for 40 hours per week, he would still have continuing income of $29,500 pa. Reducing to 20 hours could mean that he plans to work less hours, but for a longer time.
Your writer has also mentioned that his $77,000 in annual expenses includes school fees – if this is for a private school the fees could easily make up over $20,000 of the expenses. The good thing about that, is eventually school fees will end so the expenses could drop quite significantly in a period of 5-10 years, depending on what age the kids are now.
You are of course constrained by needing to fit your answer into a few paragraphs for a newspaper column – but I would suggest that your writer is potentially close to being able to fund the goals he has outlined. He should definitely continue his quest to find a financial planner he and his wife are comfortable with, so they can receive some guidance on how close they are, and the risks involved.
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(image credit: flickr user peteoshea)