Duncan received a substantial redundancy settlement at age 45 from his long-term employer. He wondered if he might use some of this capital to fund his future lifestyle and not need to return to work at all. But investing hard-earned capital can sometimes force you to make difficult decisions about risk. While Duncan was not prepared to take a lot of risk with his money, he did realise that taking no risk at all was not an option.
He understood that if he kept all of his money ‘safe’ in a bank deposit account, inflation combined with the low interest rate paid would eventually have consumed all his capital. For Duncan to achieve his goal of not having to work again, we needed to put our thinking hats on.
First, we needed to establish an appropriate income level for Duncan. And then work out how that might be achieved without eroding his capital. We took into account that in fifteen years time he would receive further income from his former employer’s pension scheme and five years after that his state pension would kick in.
We provided Duncan with a detailed investment report, written in plain English, explaining not only what a realistic sustainable level of income was, but how it might be achieved. We spent quality time with Duncan to identify not only his attitude towards investment risk, reward and volatility, but what level of loss he could tolerate.
We would never set out to lose money, but no one should invest unless they can accept and afford the potential for loss. We presented our report to Duncan, explaining how his money would be invested and how his investments might generate income in a tax efficient manner.
He then had the opportunity to express any doubts he might have and have them responded to. By the end of the session, we were able to provide Duncan with the reassurance and confidence that he really could achieve his goals. Duncan’s plan has been in place for over five years now and with regular review we are on track to achieve his long term goals.