Retirement planning: how to fund your dream classic carPosted on
Retirement planning & investment advice to help you fund your dream classic car in retirement
In the second of what is quickly becoming a series of articles focused on retirement planning & investment advice, I will be writing about how you can fund your dream classic car in retirement.
I have met many people over the years, advising clients on the dark arts and hidden secrets of the investment world. Many of my conversations start with “what are your hopes, wants and aspirations”. What this really means is: why are you saving and what is the most important event that you want to happen in your lifetime?
Quite often I meet petrol heads, like myself, who would love to own a classic or dream car, but because of time, money and other family commitments, this project may get put on hold until retirement.
But then of course, the question becomes “how is this project going to be funded?” It is not always a project car, or major barn find (always exciting) it could be the purchase of a dream car. But the conversation usually ends with ‘but I can never afford to buy one’. So in this article I am going to share a specific story on how we can make this happen.
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Retirement planning & investment advice
So in answer to the ‘but I could never afford to buy one’, I always ask why not?
This particular petrol head said:
“Business has been tight over the last few years due to the pandemic. At the moment we are struggling to put money away to invest for our retirement years, so it’s just not going to happen”.
And herein lies the problem. If we investigate the ‘dark arts and hidden secrets of the investment world’ we find, in this scenario, the financial services industry is always looking to generate more assets under management.
We are bombarded with marketing messages that encourage us to buy this ISA or buy that ISA and save for a rainy day.
All clever marketing messages designed to attract an investor’s money, so the companies can hit their sales targets or to generate additional fees from a new business sale.
It is all about targeting investors to get more money in, not necessarily finding another solution to help the investor who cannot currently save additional moneys but finding another solution is what should be the priority!
Unfortunately, this doesn’t happen and if the client’s cash flow will not currently fund additional savings, the adviser walks away and the client continues to dream ‘if only’.
This is a ridiculous situation, but many financial advisers are restricted to what they can offer their clients or can only sell investment propositions that their company offers. Therefore finding bespoke solutions for their clients is not always a priority.
Case study: David’s retirement
Let us take the story of David.
This client is 50 years old and looking at taking retirement around 70, so in 20 years’ time.
He has a Personal Pension and savings invested in an ISA portfolio worth in the region of £275,000 and getting around 6% per annum growth on his money … so feels no changes are required.
Looking at the cash flow projections, this would give him a fund value in the region of £611,000 at David’s retirement age, so would offer an income in the region of £25,000 per annum.
David, although a real petrol head!, is also quite realistic and does not want to spend his capital value on a classic car, because this would reduce his retirement income and I could see his point.
However, we only get one shot at life and I do not think we should leave this planet with ‘what if’ regrets.
So, we had further discussions about what retirement would look like.
David and his wife enjoy the company of several different online car groups and regularly visit car shows and vintage weekends to meet with their friends. Their ideal retirement would mean owning a classic car and showing it at these events.
So I asked him to show me what car he would like if he had the additional cash.
We checked the internet and found David’s dream car: a Porsche 356 1960’s with two owners, priced around £75,000.
He and his wife could cruise to the various shows with the roof down and be part of the events, instead of being bystanders. A nice vision of retirement indeed.
Clearly he did not want to take this amount from his savings on retirement, so I suggested he could be a bit smarter with his money and if his current financial adviser was not able to help, perhaps I could?
One solution I hear from advisers in the financial press is that the client could consider taking more investment risk with their money to generate additional returns. But I do not buy into this approach whatsoever. There are other solutions available!
David’s financial adviser worked for a national Independent Financial Adviser, which meant the adviser recommended his company’s investment proposition and was not expected to go outside the company’s remit.
This meant the client was being disadvantaged and shoehorned into a product that the wealth manager offered.
When I reviewed the portfolio, the average cost being taken out of the clients’ money each year was 1.85%.
Clearly the client was comfortable with the performance and the service, but when we ran the cash flow forecasts, he had not realised the impact these fees were having on his long term wealth.
Why would he? His adviser was not going to tell him he could be financially better off going elsewhere for advice!
The total industry charges, including my fees, were 0.95% per annum.
As less fees were being taken from the clients funds each year, more wealth was left in the portfolio to compound over time.
This little change made a huge impact on the projected fund value at aged 70, which would now be in the region of £731,000 and not the current projection of £611,000. That’s a difference of £120,000.
That’s a nice Porsche 356 and it’s not cost David a penny extra.
If you would like to consider how you could generate extra money from your portfolio and make your dream come true… let’s have a conversation.