Week in review: Friday 21st August 2015

Week in reviewAs we head rapidly towards the end of the week, here is the latest roundup from Informed Choice; our week in review.

This week the Informed Choice team have been writing about the cost of residential care in later life, explaining why George Osborne is after your money, sharing new research which finds more of us are becoming aspirational savers, and describe what makes a good Financial Plan excellent.

In our podcast this week, Martin shares seven money lessons from the very rich and asks why retirees are shunning financial advice. He also answers a listener question about investing his pension fund in a hotel in Croatia.

Blogs

How much does residential care cost?How much does residential care cost?

Some new research from provider LV= has found that, over the course of the last decade, the average length of stay in a residential care home has increased from 829 days to 955 days.

George Osborne is after your money!George Osborne is after your money!

Since the Freedom and Choice in Pensions changes introduced in April, savers have taken nearly £1.8billion pounds from their pension pots. How can you minimise your income tax bill when you withdraw pension cash?

Are you an aspirational saver?Are you an aspirational saver?

New research from M&S Bank has found that while nearly two thirds of regular savers believe it’s important to contribute towards a ‘rainy day’ fund, a quarter see themselves as ‘aspirational’ savers.

What Makes A Good Financial Plan Excellent?What makes a good Financial Plan excellent?

Nobody wakes up of a morning wishing they had a Financial Plan; we just don’t think that way. However, what we do all have are hopes, dreams, wishes and fears. So what makes a good Financial Plan an excellent one?

Podcast

ICP037Informed Choice Podcast 037: Money lessons from the very rich

This week in episode 37 of the Informed Choice Podcast, Martin talks about the most important money lessons from the rich and why retirees are shunning financial advice.

He also answer a listener question about investing his pension pot in a Croatian hotel. Yes, really.

Press

Martin Bamford’s underperforming fund picks you should hold onto

In the latest in a series of articles for FE Trustnet, Martin contributes his three fund selections which investors should consider holding despite their recent run of poor relative performance.

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Informed Choice Podcast 037: Money lessons from the very rich

IC Podcast 037: Money lessons from the very richThis week in episode 37 of the Informed Choice Podcast, Martin talks about the most important money lessons from the rich and why retirees are shunning financial advice.

He also answer a listener question about investing his pension pot in a Croatian hotel. Yes, really.

Subscribe in iTunes | Click to listen now | Right click to download episode

 

In the personal finance and investing new roundup this week:

-CPI price inflation is up in July, to 0.1% from zero in June.

-The Greek parliament has backed draft terms for a new bailout package, its third in five years.

-Interest rates on savings accounts are going up, but easy access accounts are becoming harder to access easily.

-The Bank of England is warning fund management groups they need to plan for higher interest rates and investors withdrawing money to pay off mortgage debt.

-Association of British Insurance (ABI) members paid out £3.4bn in insurance claims last year.

-The price of oil is falling again, with light, sweet crude for September down to $41.87 a barrel on Monday.

Listener question

Our listener question this week comes from Brian, who emailed martin@icfp.co.uk with the following:

“My adviser has suggested I consolidate my pension plans into something called a SIPP. He has then suggested that I invest my pension pot in a hotel that is being built in Croatia. I’m not sure about this. What do you think?”

If you have a personal finance or investment question, we would love to hear from you and have the opportunity to answer your question in a future episode of the show.

To leave your question as a voicemail, call 020 8144 2745 and record your message.

Please leave a note of your full name, mention your website or blog if you have one, and then record your question. If you could keep the question to under 60 seconds, that would be perfect, and then we will feature it on a future episode of the podcast.

Alternatively, if you click here you can record a voicemail for the show there using the microphone on your PC or Mac.

Main topics

Why do retirees often shun financial advice? This was the topic of an article in the Daily Mail at the weekend, which concluded they don’t need advice, find it too expensive, and sometimes find advisers intimidating.

What do the world’s richest people do differently with their money to the rest of us? Martin read an interesting article in Entrepreneur magazine this week, sharing seven lessons about money from the world’s richest people.

Question of the week

The question of the week; What is your most important lesson for money success?

Let Martin know your answer on Twitter @martinbamford, email him at martin@icfp.co.uk, leave a voicemail for the podcast by calling 020 8144 2745 or record an online voicemail.

Useful links

Here are links to everything else Martin mentioned in episode 37 of the Informed Choice Podcast:

Cranleigh parkrun

Cranleigh Lions Classic Car Show

Cranleigh Food & Music Festival

Why do retirees shun financial advice? (Daily Mail article)

7 Lessons About Money From The World’s Richest People (Entrepreneur magazine article)

iTunes reviews

If you listen to this podcast, please take one minute to leave an honest review on iTunes.
Reviews from listeners are so important to help others find the podcast, and we also really want your feedback so we know which elements of the show you enjoy and what we can improve. To leave a review, simply visit www.icfp.co.uk/itunes.

Martin will read out reviews at the end of each future episode, so please make sure you leave a note of your real name, so you get a mention.

Subscribe in iTunes | Click to listen now | Right click to download episode

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What Makes A Good Financial Plan Excellent?

What Makes A Good Financial Plan Excellent?Nobody wakes up of a morning wishing they had a Financial Plan; we just don’t think that way.

However, what we do all have are hopes, dreams, wishes and fears.

There are things we want to achieve in life and things we want to avoid happening to us.

The problem is we are often so caught up in daily life we don’t take time to consider what really does matter to us and what we really want to avoid.

So what makes a good Financial Plan an excellent one?

Here is my checklist:

1. Don’t think of it as a FINANCIAL Plan, think of it as a THINGS I MUST ACHIEVE IN LIFE Plan.

2. Take time to think about what really matters to you. Do it with a loved one so you can share each others hopes and fears. I am willing to bet there will not be many products on your list but there will be lots of experiences to enjoy and places to visit.

3. Are they specific, realistic, achievable, relevant and time framed? If so you can turn them into meaningful (financial) objectives.

4. Segment them into short, medium and long term horizons. Are any achievable right now? If so, do them. If not, what do you need to make them achievable.

5. Compile a list of everything you own and everything you owe. This will help you understand what is affordable. What is your net worth? How are you going to repay any debts?

6. Take time to understand what the current cost of your lifestyle is (and what your desired lifestyle will be). Are you wasting money on areas that aren’t going to help you achieve your goal?

7. Make prudent assumptions for growth on your assets, income changes and inflation.

8. Using your net worth, income and lifestyle costs and by applying the prudent assumptions you can paint a picture of what your financial future looks like and whether your ‘THINGS I MUST ACHIEVE IN LIFE’ list is achievable or not.

9. If things are looking rosy, keep going. Perhaps you can even bring forward the date you achieve your ambitions.

10. If things aren’t looking too rosy you can consider what actions you need to take to make them achievable: put simply how can you spend less and save more and what is the most efficient way to save? This will vary according to your short, medium and long terms goals.

11. How comfortable are you with taking investment risk (i.e. investing in stock markets). The more you are prepared to put into stock markets the greater long term returns you may expect to receive but a balance is required: you don’t want to jeopardise your dreams due to the vagaries of the global stock markets.

12. Make use of the available tax allowances and tax efficient products (pensions & ISAs for example) so that wealth is not passed onto the Exchequer needlessly (but paid where it is required to be!).

13. Ensure investment charges are kept to a minimum so wealth is not needlessly passed onto asset managers.

14. Review: Financial Plans are not one off activities but are constantly evolving to take into account changes in personal circumstances, legislation, taxation and investment markets to ensure that the achievement of the previously (or newly) identified goals are achieved.

15. Engage the services of a CERTIFIED FINANCIAL PLANNER to make sure all of the above are done effectively and efficiently.

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Are you an aspirational saver?

Are you an aspirational saver?Saving is good.

Saving for a specific goal is better.

New research from M&S Bank has found that while nearly two thirds of regular savers believe it’s important to contribute towards a ‘rainy day’ fund, a quarter see themselves as ‘aspirational’ savers.

This means that, instead of simply saving towards a rainy day, they choose to put their money towards a tangible savings goal.

What goals you ask?

The most popular savings goal for aspirational savers, with more than half saying they were contributing towards this every month, was holidays.

A new home was the second most important goal for many aspirational savers, with nearly a third saying they were saving to buy a new house.

17 per cent were saving towards home improvements.

The research found that four in five adults have at least one savings account and nearly half of those with a savings account said they saved at least once a month.

The average savings pot stands at £10,156 and the average monthly contribution is £156, but 15 per cent have less than £100 in their savings.

Savings often get overlooked alongside the more exciting world of investing, but they should form the foundation of any solid Financial Plan.

Certainly any financial goal you have with a short or medium term (say up to 5-7 years in the future) is usually better suited to cash savings than investing the money.

Yes, low interest rates are a bit rubbish right now. Yes, over time the impact of price inflation will erode the buying power of your cash savings.

But cash comes with the clear advantage that the value will not go down. Investments don’t have that luxury.

This research from M&S Bank makes an interesting distinction between saving for a rainy day and aspirational savings.

Saving for a rainy day – saving to create an ’emergency fund’ – can still be aspirational, assuming you quantify the amount you need to save and how much you are prepared to save towards this goal.

Clearing debts, putting in place financial protection for your family and saving for a rainy day are all important financial goals; things that should be satisfied before moving onto the longer-term objectives of investing for the future and retirement planning.

 

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George Osborne is after your money!

George Osborne is after your money!Since the Freedom and Choice in Pensions changes introduced in April, savers have taken nearly £1.8billion pounds from their pension pots.

That is a staggering amount of money and, when you consider that potentially anything over 25% of that money is subject to income tax, the Chancellor George Osborne must be delighted.

Assuming that 75% or £1.35 billion of those withdrawals were taxable at 20% then he will have raised £270 million of extra tax revenue.

The pension changes are in the main very positive after all pension pot owners are “grown ups” and should be in control of their own money.

But I can’t help feel that this has been his motive all along to raise extra tax revenue; all in one go rather than taxing a smaller stream of income over very many years.

There are some ways however of taking money from your pension pot without suffering a huge income tax bill.

For example you can simply take your entitlement to a tax free cash lump sum and leave the rest of your pension fund invested.

This is perfectly allowable although some pension pot providers will not make it easy for you.

If you do this remember you may then have less pension pot to provide income in later life.

However if you invest wisely then future investment growth and potentially future contributions may well replace the tax free cash that you have taken and spent.

One of our clients very sensibly took her tax free cash lump sum and the is planning to take a further lump sum of approximately £10,000 per year until she has used up her pension pot entirely.

As she has no other taxable income these payments are effectively tax free.

Over the next few years she will take the whole of her pension pot without paying any income tax at all.

That said, she is initially taxed on those withdrawals (in excess of the tax free cash lump sum) and has to claim it back from the taxman.

So if you have no taxable income you might want to employ an approach like this to have more of your pension pot in your own pocket rather than in the Chancellor’s.

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How much does residential care cost?

How much does residential care cost?How long is a piece of string?

As Financial Planners with a specialism in care fees planning, we often talk about the cost of residential care in later life.

This can be incredibly expensive, especially here in the South East of England where typical fees can quickly deplete life savings.

But the total cost of residential care of course depends on the length of the stay in a care home.

Some new research from provider LV= has found that, over the course of the last decade, the average length of stay in a residential care home has increased from 829 days to 955 days.

That’s an increase of 13% over the past ten years.

With rising life expectancy and improvements in medicine, it is perhaps little surprise that residents in care homes are living for longer.

A higher standard of care might also be contributing to this longer average length of stay.

955 days is around two and a half years in a care home.

Of course this is only an average and averages can hide a wide range of outcomes; many are resident in care homes for less than two years, some are resident in care homes for significantly longer!

Another part of the research by LV= looked at how affordable these longer stays in residential care really are.

They looked at the average size of a pension pot at the start of retirement and concluded this would cover less than the cost of an average care home stay.

By the time an individual actually needs care, the pension pot is usually worth even less.

LV= also found that women face a bigger challenge then men when it comes to funding residential care.

23% of women only receive a State pension income as they enter retirement, with just 9% of men in the same position. However, women are twice as likely as men to go into residential care homes.

Another interesting part of the LV= research found that 19,000 people during the past five years have had a charge placed on their property by their local authority, in order to meet the cost of residential care.

This happens where an individual doesn’t have sufficient cash to cover the cost of care, but they do have a qualifying value in their home.

In some instances, the value of your home is exempt from the local authority means test for care fees, but where it isn’t and you are keen to retain ownership, it is possible for the local authority to place a charge on the property and lend you the money, instead of forcing you to sell.

According to John Perks, managing director of LV= Retirement Solutions:

“The UK is facing an uncertain future on the funding of long-term care, especially with the care cap being delayed. Although many of us leave the workplace in good health, as we are living longer with the average retirement now 17 years long, the likelihood of us needing residential or domiciliary care is increasing.

“In addition, we are also seeing a rise in the length of time being spent in care. This highlights a very real need for many to consider a more flexible retirement income solution such as a fixed term annuity.

“Low interest rates, coupled with social care budgets being cut, create a worrying financial backdrop for many, especially those already in retirement as they are currently faced with an open ended bill which makes it difficult to plan effectively to fund these costs.”

If you are concerned about the cost of care in later life, please do get in touch.

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Week in review: 14th August 2015

Week in reviewSunshine and showers. Sunshine and torrential thunderstorms.

It’s been another week of typical British summer weather here in Cranleigh, although Nick and Andy spent part of it on holiday in sunny Dorset and Martin picked the best weather of the week for a trip across to Cowes.

This week on the Informed Choice website, the team have been writing about our sponsorship of the new Cranleigh Classical Recital Series, why you shouldn’t rely on inheritance windfalls, what on earth is going on in China, how much spare cash you need to be happy, and why German car brands matter for your Financial Planning.

In the latest episode of the Informed Choice Podcast, Martin talks about investment sharks who are after your pension fund, why couples are choosing to put in place ‘pre-pup’ agreements in case of divorce, and how the rapper 50 Cent tricked us into believing he was living a luxury lifestyle.

Blogs

Cranleigh Classical Recital Series 2015/16Cranleigh Classical Recital Series 2015/16

Informed Choice is pleased to be sponsoring the new Classical Recital Series for 2015/16, which takes place from October at the Cranleigh Arts Centre.

Relying on inheritance windfallsRelying on inheritance windfalls

New research suggests one in three working age people in Britain are banking on an inheritance to make everything alright in the future. The bad news? They could be in for an unpleasant shock.

What is going on in China?What is going on in China?

The second largest economy in the world has devalued its currency by around 2% against the US dollar in an attempt to prevent a further drop in exports. What does this mean for your investments?

£71.54 a week in spare cash will make you happy£71.54 a week in spare cash will make you happy

The Cash Happy study from SunLife interviewed over 3,000 people and found an interesting correlation between spare cash and happiness.

German car brands & your Financial PlanningGerman car brands & your Financial Planning

German car manufacturers top the list of ‘most wanted’ car brands. Your car ownership plans should be factored into your Financial Plan, especially during the retirement phase.

Podcast

ICP036 - Sharks, Pre-Pups & 50 CentICP036 – Sharks, Pre-Pups & 50 Cent

This week in episode 36 of the Informed Choice Podcast, Martin talks about investment sharks who are after your pension fund, why couples are choosing to put in place ‘pre-pup’ agreements in case of divorce, and how the rapper 50 Cent tricked us into believing he was living a luxury lifestyle.

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ICP036 – Sharks, Pre-Pups & 50 Cent

ICP036 - Sharks, Pre-Pups & 50 CentThis week in episode 36 of the Informed Choice Podcast, Martin talks about investment sharks who are after your pension fund, why couples are choosing to put in place ‘pre-pup’ agreements in case of divorce, and how the rapper 50 Cent tricked us into believing he was living a luxury lifestyle.

Subscribe in iTunes | Click to listen now | Right click to download episode

 

In the personal finance and investing new roundup this week:

-The Bank of England has kept interest rates on hold at 0.5%.

-Institute of Financial Planning (IFP) and Chartered Institute for Securities and Investment (CISI) propose a merger.

-The US economy added 215,000 new jobs in July.

-Specialist annuity providers Just Retirement and Partnership have announced they are to merge.

-Greece has reached a deal with its creditors on a new bailout deal.

-China, the second largest economy in the world, has devalued its currency by around 2% against the US dollar.

Listener question

If you have a personal finance or investment question, we would love to hear from you and have the opportunity to answer your question in a future episode of the show.

To leave your question as a voicemail, call 020 8144 2745 and record your message.

Please leave a note of your full name, mention your website or blog if you have one, and then record your question. If you could keep the question to under 60 seconds, that would be perfect, and then we will feature it on a future episode of the podcast.

Alternatively, if you click here you can record a voicemail for the show there using the microphone on your PC or Mac.

Main topics

The sharks are out and they can smell blood in the form of your pension fund. Citizens Advice has issued a new warning about free pension reviews, exotic investments and high-return financial products. These are among the fraudulent financial offers being pushed on older people.

What would happen to your pets if you and your partner ever split up? A press release from The co-operative landed on my desk earlier in the week, based on research that nine out of ten couples (93%) haven’t given any thought as to what would happen to their pet, should they ever split up.

How wealthy are wealthy people, really? Curtis James Jackson III, better known by his stage name 50 Cent, or Fiddy, is an American rapper and entrepreneur, who filed for Chapter 11 bankruptcy protection last month, after being hit with a court order to pay $5 million to Lastonia Leviston, a lady who featured in a sex tape allegedly released by the rapper.

Question of the week

The question of the week; do you have an agreement with your significant other about who would keep the pets if you split?

Useful links

Here are links to everything else Martin mentioned in episode 36 of the Informed Choice Podcast:

Cowes Week

WTF Podcast

True Detective

Ruthless investment sharks are pursuing older savers with offers of ‘free’ pension reviews and bogus products (article)

6 ways 50 Cent says he tricked the world into believing he was rich

iTunes reviews

If you listen to this podcast, please take one minute to leave an honest review on iTunes.
Reviews from listeners are so important to help others find the podcast, and we also really want your feedback so we know which elements of the show you enjoy and what we can improve. To leave a review, simply visit www.icfp.co.uk/itunes.

Martin will read out reviews at the end of each future episode, so please make sure you leave a note of your real name, so you get a mention.

Subscribe in iTunes | Click to listen now | Right click to download episode

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German car brands & your Financial Planning

German car brands & your Financial PlanningI’m a BMW driver. Please don’t hate me.

With that minor confession (and request) out of the way, it was interesting to see that German car manufacturers top the list of ‘most wanted’ car brands.

It was possibly less surprising to see them also feature in the top 10 worst driver list.

GoCompare asked 1,570 drivers about their most desired cars and found that Audi, BMW and Mercedes top the list of car brands drivers most want to own.

Audi were top of the poll of most desired car brands, with 29% of those surveyed saying they would like to own an Audi. Vorsprung durch Technik, indeed.

BMW came second in the poll with 26% of those surveyed aspiring to own a BMW. Mercedes Benz was in third place as a ‘must have’ car for a quarter of drivers.

Mitsubishi, Jeep and Subaru brands came bottom of the list.

The same survey also asked drivers which car brands they thought have the worst drivers. BMW, Audi and Mercedes topped the list again.

This is of course all about reputation and perception.

I’m conscious that BMW drivers in particular have a reputation for not signalling at junctions.

if-you-ever-feel-useless-remember-that-somebodys-job-is-to-install-turn-signal-systems-at-bmw-indicatorsThere is a serious, Financial Planning point to this post, I promise.

Cars are often an emotional rather than practical buying decision.

Effective car buyers set a budget before shopping for their preferred marque, do their research before stepping foot in a dealership and avoid making an emotional attachment to a vehicle.

Your car ownership plans should be factored into your Financial Plan, especially during the retirement phase.

We ask our clients about their timetable for car replacement and budget, factoring this into their Financial Plan along with likely resale values for existing vehicles and, of course, ongoing insurance and maintenance costs.

In our experience, few retirees consider their vehicle preferences in later life in enough detail and many face a financial shock when the time comes to replace a car – especially if they have been used to driving an Audi, BMW or Mercedes during their working lifetimes.

 

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£71.54 a week in spare cash will make you happy

£71.54 a week in spare cash will make you happyThe happiest people in Britain have £71.54 a week in spare cash, according to new research.

The Cash Happy study from SunLife interviewed over 3,000 people and found an interesting correlation between spare cash and happiness.

‘Spare cash’ is defined as the money we have to spend however we want each month; money left over after our regular outgoings on household bills, food, fuel, fees and so on are paid for.

The Cash Happy study found that the average monthly household income in the UK is £1,970.

Out of this comes rent (average of £433) or mortgage (average of £450), loans (average of £250) or credit card payments (average of £120) and other regular monthly payments.

Then there are all our other monthly costs such as transport, clothing and food – at the end of which, the average spare cash per is £381 a month per household.

Per UK adult, that becomes £166 a month, or £38.19 a week.

Which means that on average, 81% of the money we earn is already earmarked for our regular outgoings – leaving just one pound in every five we earn as ‘spare cash’ to spend however we want.

To put it another way, if you work five days a week, then the money you earn from Monday to Thursday is already earmarked for your regular outgoings.

So, just how much spare cash makes us happy?

SunLife’s research found that – after a number of other factors that influence happiness are removed – to be among the happiest 10% in the UK someone needs £310 spare cash each month, equivalent to £71.54 a week.

Although incomes here in Surrey, the South East and London are higher than the national average, so are outgoings.

As a result, people in this region typically have less spare cash.

Londoners have an average of just 17% of their income as spare cash, which below the national average of 19%.

It is well below that of the happiest people – the Scots – whose spare cash accounts for almost a quarter of their income.

Meanwhile, the least happy (according to the research) were people in the East Midlands who also have one of the lowest levels of spare cash in the country.

It seems that ‘Keeping up with the Jones’’ is important too; those who thought they had more spare cash than their peers were happier than those who believed they had less.

Do you know how much spare cash you have each month? What impact does it have on your happiness?

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