The importance of understanding your financial plan

When I plan for my clients’ retirement, I always try and make their financial plan simple and easy to understand, tax efficient, flexible and able to change over time as their circumstances change.

It still appals me when I see some of the financial advice that is given to clients that is not necessarily in their best interests, and which ties them up in complicated structures for years to come.  A client of mine showed me a proposal he had received from an “insurance salesman” (for want of a better word) this week.  It involved retiring him from his Preservation Pension Fund (when he did not need to retire and start drawing an income as he is still working), and paying unnecessary tax on both the lump sum, and the living annuity income.  In addition, my client was advised to pay these amounts into further structures (on which the insurance salesman would earn commission), which would have tied his money up for a 10 year period.  He is currently 59, so he would not be able to draw his own income until he was 69!

My client now has a robust financial plan, which we carefully built, taking into account how long he still expects he will work for, and at what stage he will need to draw a retirement income.  If he had gone ahead with the salesman’s recommendation and wasted unnecessary amounts on tax, just so that the salesman could have earned commission, he may have done irreparable damage to this plan, and possibly not been able to retire when he wanted to, or had his retirement income last as long as it needs to.

Can I caution you to always make sure that you understand your financial plan, and keep asking questions until you do understand it.  It should be flexible, and able to change with your changing circumstances.  Be aware what the costs involved are, and be very careful of any promises of unrealistically high returns.  Usually when it sounds too good to be true, it normally is!

If you do not have your own financial planner, ask your friends for the name of their financial planner.  Alternatively, if you are already in discussions with a financial planner ask them if you may speak to some of their clients, to get a reference on them.  Retirement should be a happy time, and you do not want this marred by unscrupulous salesmen who do not have your best interests at heart.

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