Retirement planning: how to fund your retirement motor yachtPosted on
Retirement planning & investment advice to help you fund your retirement motor yacht
In this article, the third in a series on retirement planning & investment advice, I’d like to talk about how you can fund your dream motor yacht during retirement; simply by making some small changes now which will benefit you when the time comes.
I have met many investors over the years, advising them 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 hear “when I retire I want to buy a yacht and cruise around the South coast”, with Spain or the Greek islands also as firm favourites.
When I enquire what sort of boat they are looking for, they generally come up with a specific boat or yacht they like but end the conversation with “but I could never afford to buy one”.
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So, in this article I am going to share a specific story on how we can make this happen.
Retirement planning & investment advice
So in answer to the “but I could never afford to buy one” I always ask why not?
This particular chap said:
“I have spoken to my financial adviser and he said I would have to put extra money away, specifically to buy it. 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, their adviser was looking to generate more assets under management.
Their adviser may have had company targets to hit or was looking to generate additional fees from a new business sale, so his advice was targeted at getting more money in, not necessarily finding another solution.
The client’s cash flow will not currently fund additional savings, so in this case 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: motor yacht
This client was 53 and looking at taking retirement around 68 so in 15 years’ time.
He had a Personal Pension and ISA portfolio worth in the region of £350,000 and was getting around 6% per annum growth on his money; happy with his current proposition.
Looking at the cash flow projections, this would give the client a fund value in the region of £618,000 at retirement age, so would offer an income in the region of £25,000 per annum.
The client therefore did not want to spend more of his capital value on a boat, 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, with or without a boat.
Clearly this chap and his wife had loved boats in the past and had a yacht magazine lying around under the coffee table, so I asked him to show me what he would like if he had additional cash.
I was expecting him to point to a mega yacht but this guy had a clear vision of what he wanted and said, pointing at a picture, “something like this would be perfect”.
A 37’ 8” Bavaria 36, six berth cruiser, with two aft cabins and double fore cabin, powered by a Volvo 30hp diesel engine in excellent condition, priced around £65,000.
He and his wife could take out friends and family and entertain on the yacht. A nice vision of retirement.
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 adviser was not able to help, perhaps I could?
One solution I hear from advisors in the financial press, is 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 ways!
This chap’s financial adviser worked for a national restricted advice firm, which meant the adviser could only advise on that company’s chosen proposition. He could not offer independent advice or go outside the companies 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 2.05%.
Clearly the client was comfortable with performance and service, but when we ran the cash flow forecasts, he had not realised the impact those 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!
I suggested a more transparent and financially efficient approach to investment which had lower investment charges, but still had the same expected returns of 6% for the same investment risk profile.
The total industry charges, including my fees were 0.95% per annum.
As lower fees were being taken from the client’s funds each year, this meant more wealth was left in the portfolio to compound.
This little change meant that the projected fund value at age 68 would be in the region of £728,000 and not the current projection of £618,000. That’s a difference of £110,000.
That’s a nice boat and it’s not cost the client 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.