What If .... It all goes wrong?

1996: Portrait of a Lady - Campion

This afternoon I met with a long-term client that really gets what we are doing for her. She is a very fit 80 year old lady with a sharp mind and a lovely sense of humour. Inevitably we turned to the awkward topic of life expectancy and discussed her family history and her opinions about potentially needing assistance and long-term residential care. We clarified her thoughts about leaving and selling her home should she require care. We also talked about her desire to help her wider family and the possibility of needing to spend money on her own healthcare. Naturally she also has concerns about the state of the world and global stockmarkets, how much should she hold in cash as an emergency fund and so on.

I do some sums, adjust her financial plan and reveal that allowing for her current rate of spending and estimated giving and medical bills, she can afford her portfolio to achieve a return of -0.51% a year. In other words, she can afford to achieve no (negative) growth and still have sufficient funds. If there is a dire stockmarket crash of 35% that doesn't bounce back, but is simply marked as a "correction" her returns need to achieve 2.86% a year. Now nobody wants a crash and I have yet to meet someone that wants to enter residential care rather than living in their own home, but this sort of analysis and information is vital to providing peace of mind. Certainly we can adjust some of the assumptions, even the most apocalyptic assumption of a 65% crash that doesn't recover, would mean that her investments need to generate 7.89% a year. The important ingredient going forward will be to review her plan carefully, balancing risk and reward with needs and making sure that she is within her own budget (not ours). This is the power of good financial planning.