Wealth Accumulator
Strangely enough this section of society is the one that is least vulnerable to the disadvantages of the traditional commission based retail service provided by many IFAs. The reason for this is that many of the solutions this group requires will be financial products. The fact the advice is vulnerable to bias, lacking in context and potentially hugely expensive is precisely why even these people need the impartiality that only a fee based financial planning service can provide.
A wealth accumulator is someone who has settled into their career and is typically in the age group 35 to 50. There are phases in their life when their income is considerably in excess of their outgoings and this period must be capitalised upon to ensure their long term financial security. As these people progress through their lives careful monitoring is required to identify the point at which they cease to become wealth accumulators and attain wealth preserver status. Failure to recognise this point and rearrange their financial affairs accordingly puts the timing and control of their financial independence at risk.
The example model shown is at the younger end of the wealth accumulator scale. They have three particular objectives all requiring a slightly different strategy. The have a lump sum shortfall in their mortgage arrangements, they wish to educate their child privately from secondary age and there is a considerable shortfall in their retirement provisions. This case highlights the holistic nature of the financial planner’s role because the advice required is to identify the split between pension and non pension environment that this client should save into. In addition the client currently has considerable disposable income and so this poses additional questions about what should be done with the excess funds over their normal financial planning requirements.
Building a financial model for this client enables the planner to clearly identify the potential vulnerabilities. It also provides the client with the opportunity to realise that although they are very comfortable now this will not necessarily always be the case unless they take action now. It is effectively bringing their financial future into the present to give them an opportunity to do something about it.
An absolute must for clients of this age is flexibility. Their objectives and attitudes will almost certainly change as will their circumstances. Their planning arrangements must be totally flexible to be able to accommodate such a potentially diverse set of scenarios.
Example Model
- Client Details
- Incomings/Outgoings
- Planning Forecast
The details of the client and the basic assumptions being used for inflation, interest, and model end date.
| Title | Dr. |
| Name | Wealth Accumulator |
| Date of Birth | 10/02/1970 |
| Retirement Age | 60 |
| Current Age | 34 |
| Assumptions | |
| Inflation Rate | 2.5% |
| Growth Rate | 5.25% |
| Model End Date | 2070 |
The table gives a brief description of each event e.g. retirement expenditure. It then shows the cumulative total of each event that will be received between now and the model end date. Some people will find it surprising just how large these figures will be and begin to realise the need for planning. The table then goes on to show the year by year breakdown and totals.
This model is fairly typical of a younger person. They have various objectives that requiring funding at various stages of their life. The objectives are also slightly different in their make up. The current mortgage has a lump sum shortfall, the school fees are an annual commitment for a set number of years and the retirement expenditure must provide an income for the rest of their life. Financial modeling is essential to provide the context within which various scenarios can be explored to find the most suitable for this client.
| Incomings | Outgoings | ||||||||||
| Description | ISA Portfolio | Endowment Maturity | Company Pension TFC | Personal Pension TFC | Company Pension | Personal Pension income | Annual Totals | School Fees | Mortgage | Retirement Expenditure | Annual Totals |
| Cumulative Total | 101,750 | 74,000 | 198,832 | 32,074 | 3,484,354 | 302,974 | -132,728 | -100 | -5,569,620 | ||
| 2004 | 26,250 | 26,250 | 0 | ||||||||
| 2005 | 3000 | 3000 | 0 | ||||||||
| 2006 | 3000 | 3000 | 0 | ||||||||
| 2007 | 3000 | 3000 | 0 | ||||||||
| 2008 | 3000 | 3000 | 0 | ||||||||
| 2009 | 3000 | 3000 | 0 | ||||||||
| 2010 | 3000 | 3000 | -9380.67 | -9380.67 | |||||||
| 2011 | 3000 | 3000 | -9849.70 | -9849.70 | |||||||
| 2012 | 3000 | 3000 | -10342.19 | -10342.19 | |||||||
| 2013 | 3000 | 3000 | -10859.30 | -10859.30 | |||||||
| 2014 | 3000 | 3000 | -11402.26 | -11402.26 | |||||||
| 2015 | 3000 | 3000 | -11972.38 | -11972.38 | |||||||
| 2016 | 3000 | 3000 | -12570.99 | -12570.99 | |||||||
| 2017 | 3000 | 3000 | -13199.54 | -13199.54 | |||||||
| 2018 | 3000 | 3000 | -13859.52 | -13859.52 | |||||||
| 2019 | 3000 | 3000 | -14552.50 | -14552.50 | |||||||
| 2020 | 3000 | 74,000 | 77,000 | -15280.12 | -100,000 | -115280.12 | |||||
| 2021 | 3000 | 3000 | 0 | ||||||||
| 2022 | 3000 | 3000 | 0 | ||||||||
| 2023 | 3000 | 3000 | 0 | ||||||||
| 2024 | 3000 | 3000 | 0 | ||||||||
| 2025 | 3000 | 3000 | 0 | ||||||||
| 2026 | 3000 | 3000 | 0 | ||||||||
| 2027 | 3000 | 3000 | 0 | ||||||||
| 2028 | 3000 | 3000 | 0 | ||||||||
| 2029 | 3000 | 3000 | 0 | ||||||||
| 2030 | 199483.22 | 32074 | 51863.92 | 4495 | 288416.14 | -82902.69 | -82902.69 | ||||
| 2031 | 53160.52 | 4607.38 | 57767.90 | -84975.26 | -84975.26 | ||||||
| 2032 | 54489.54 | 4722.56 | 59212.09 | -87099.64 | -87099.64 | ||||||
| 2033 | 55851.77 | 4840.62 | 60692.40 | -89277.13 | -89277.13 | ||||||
| 2034 | 57248.07 | 4961.64 | 62209.71 | -91509.06 | -91509.06 | ||||||
| 2035 | 58679.27 | 5085.68 | 63764.95 | -93796.79 | -93796.79 | ||||||
| 2036 | 60146.25 | 5212.82 | 65359.07 | -96141.71 | -96141.71 | ||||||
| 2037 | 61649.91 | 5343.14 | 66993.05 | -98545.25 | -98545.25 | ||||||
| 2038 | 63191.16 | 5476.72 | 68667.88 | -101008.88 | -101008.88 | ||||||
| 2039 | 64770.93 | 5613.64 | 70384.57 | -103534.10 | -103534.10 | ||||||
| 2040 | 66390.21 | 5753.98 | 72144.19 | -106122.45 | -106122.45 | ||||||
| 2041 | 68049.96 | 5897.83 | 73947.79 | -108775.52 | -108775.52 | ||||||
| 2042 | 69751.21 | 6045.28 | 75796.49 | -111494.90 | -111494.90 | ||||||
| 2043 | 71494.99 | 6196.41 | 77691.40 | -114282.28 | -114282.28 | ||||||
| 2044 | 73282.37 | 6351.32 | 79633.68 | -117139.33 | -117139.33 | ||||||
| 2045 | 75114.43 | 6510.10 | 81624.53 | -120067.82 | -120067.82 | ||||||
| 2046 | 76992.29 | 6672.85 | 83665.14 | -123069.51 | -123069.51 | ||||||
| 2047 | 78917.09 | 6839.67 | 85756.77 | -126146.25 | -126146.25 | ||||||
| 2048 | 80890.02 | 7010.67 | 87900.69 | -129299.91 | -129299.91 | ||||||
| 2049 | 82912.27 | 7185.93 | 90098.20 | -132532.40 | -132532.40 | ||||||
| 2050 | 84985.08 | 7365.58 | 92350.66 | -135845.71 | -135845.71 | ||||||
| 2051 | 87109.71 | 7549.72 | 94659.43 | -139241.86 | -139241.86 | ||||||
| 2052 | 89287.45 | 7738.46 | 97025.91 | -142722.90 | -142722.90 | ||||||
| 2053 | 91519.63 | 7931.93 | 99451.56 | -146290.98 | -146290.98 | ||||||
| 2054 | 93807.63 | 8130.22 | 101937.85 | -149948.25 | -149948.25 | ||||||
| 2055 | 96152.82 | 8333.48 | 104486.29 | -153696.96 | -153696.96 | ||||||
| 2056 | 98556.64 | 8541.82 | 107098.45 | -157539.38 | -157539.38 | ||||||
| 2057 | 101020.55 | 8755.36 | 109775.91 | -161477.86 | -161477.86 | ||||||
| 2058 | 103546.07 | 8974.25 | 112520.31 | -165514.81 | -165514.81 | ||||||
| 2059 | 106134.72 | 9198.60 | 115333.32 | -169652.68 | -169652.68 | ||||||
| 2060 | 108788.09 | 9428.57 | 118216.65 | -173894.00 | -173894.00 | ||||||
| 2061 | 111507.79 | 9664.28 | 121172.07 | -178241.35 | -178241.35 | ||||||
| 2062 | 114295.48 | 9905.89 | 124201.37 | -182697.38 | -182697.38 | ||||||
| 2063 | 117152.87 | 10153.53 | 127306.40 | -187264.82 | -187264.82 | ||||||
| 2064 | 120081.69 | 10407.37 | 130489.06 | -191946.44 | -191946.44 | ||||||
| 2065 | 123083.73 | 10667.56 | 133751.29 | -196745.10 | -196745.10 | ||||||
| 2066 | 126160.83 | 10934.25 | 137095.07 | -201663.73 | -201663.73 | ||||||
| 2067 | 129314.85 | 11207.60 | 140522.45 | -206705.32 | -206705.32 | ||||||
| 2068 | 132547.72 | 11487.79 | 144035.51 | -211872.95 | -211872.95 | ||||||
| 2069 | 135861.41 | 11774.99 | 147636.40 | -217169.78 | -217169.78 | ||||||
| 2070 | 0 | 0 | 0 | 0 | 0 | ||||||
The view here shows the clients inflows as green bars. The first is the starting value of their ISA, this is followed by the endowment maturity. At retirement we see the tax free lump sum followed by their pension income. Below the line we see the school fees coming out regularly and the larger spike of the mortgage repayment. Corresponding to the pension income above the line we see the retirement expenditure in red bars below the line.
Interrogation of the spreadsheet shows that the client is slightly off target from being able to afford the education costs but no provision has been made to plug the gap in their mortgage. This means the £3,000 that they were saving is now used simply to furnish the interest on their debt. The tax free lump sum from their pension gets them briefly out of debt but the considerable gap between their retirement expenditure objectives and their forecasted pension income means that within a few years they are back in debt.
As with all financial models the software throws up a number of potential solutions. In this scenario they were;
- To achieve a growth rate of just under 12% each year from their investments, which is unlikely to happen.
- To save just over £6,000 per year until retirement, increasing the amount they save by 5% each year.
- Invest a lump sum of just under £160,000 today.
The solution for this client was to save additional money regularly. They need to convert the existing Mini ISA to a maxiISA and save an extra £4,000 into this taking the total up to £7,000 per annum. In addition £300 per month gross should be saved into their pension. Finally they need to convert their mortgage to a flexible mortgage. This facilitates the ability to make overpayments at any time and have the credit balances of any current or savings accounts offset against the outstanding debt of the mortgage. As this client has significant disposable income at present these overpayments should wipe out the difference between their endowment maturity value and the mortgage debt.
| Year | Starting Fund | Incomings | Outgoings | Growth | End Fund | Today's Value |
| 2004 (34) | 0.00 | 26,250.00 | 0.00 | 12.92 | 26,262.92 | 26,262.92 |
| 2005 (35) | 26,262.92 | 3,000.00 | 0.00 | 1,536.30 | 30,799.22 | 30,048.02 |
| 2006 (36) | 30,799.22 | 3,000.00 | 0.00 | 1,774.46 | 35,573.68 | 33,859.54 |
| 2007 (37) | 35,573.68 | 3,000.00 | 0.00 | 2,025.12 | 40,598.79 | 37,700.02 |
| 2008 (38) | 40,598.79 | 3,000.00 | 0.00 | 2,288.94 | 45,887.73 | 41,572.02 |
| 2009 (39) | 45,887.73 | 3,000.00 | 0.00 | 2,566.61 | 51,454.34 | 45,478.14 |
| 2010 (40) | 51,454.34 | 3,000.00 | -9,380.67 | 2,571.57 | 47,645.24 | 41,084.34 |
| 2011 (41) | 47,645.24 | 3,000.00 | -9,849.70 | 2,141.77 | 42,937.30 | 36,121.66 |
| 2012 (42) | 42,937.30 | 3,000.00 | -10,342.19 | 1,868.74 | 37,463.86 | 30,748.33 |
| 2013 (43) | 37,463.86 | 3,000.00 | -10,859.30 | 1,554.24 | 31,158.80 | 24,949.73 |
| 2014 (44) | 31,158.80 | 3,000.00 | -11,402.26 | 1,194.72 | 23,951.25 | 18,710.68 |
| 2015 (45) | 23,951.25 | 3,000.00 | -11,972.38 | 786.39 | 15,765.27 | 12,015.42 |
| 2016 (46) | 15,765.27 | 3,000.00 | -12,570.99 | 325.20 | 6,519.47 | 4,847.59 |
| 2017 (47) | 6,519.47 | 3,000.00 | -13,199.54 | -193.20 | -3,873.27 | -2,809.75 |
| 2018 (48) | -3,873.27 | 3,000.00 | -13,859.52 | -773.47 | -15,506.27 | -10,974.21 |
| 2019 (49) | -15,506.27 | 3,000.00 | -14,552.50 | -1,420.59 | -28,479.35 | -19,664.01 |
| 2020 (50) | -28,479.35 | 77,000.00 | -115,280.12 | -2,715.62 | -69,475.09 | -46,800.15 |
| 2021 (51) | -69,475.09 | 3,000.00 | 0.00 | -3,489.94 | -69,965.03 | -45,980.67 |
| 2022 (52) | -69,965.03 | 3,000.00 | 0.00 | -3,515.66 | -70,480.70 | -45,189.82 |
| 2023 (53) | -70,480.70 | 3,000.00 | 0.00 | -3,542.74 | -71,023.43 | -44,427.13 |
| 2024 (54) | -71,023.43 | 3,000.00 | 0.00 | -3,571.23 | -71,594.66 | -43,692.14 |
| 2025 (55) | -71,594.66 | 3,000.00 | 0.00 | -3,601.22 | -72,195.88 | -42,984.44 |
| 2026 (56) | -72,195.88 | 3,000.00 | 0.00 | -3,632.78 | -72,828.67 | -42,303.60 |
| 2027 (57) | -72,828.67 | 3,000.00 | 0.00 | -3,666.01 | -73,494.67 | -41,649.23 |
| 2028 (58) | -73,494.67 | 3,000.00 | 0.00 | -3,700.97 | -74,195.64 | -41,020.94 |
| 2029 (59) | -74,195.64 | 3,000.00 | 0.00 | -3,737.77 | -74,933.41 | -40,418.38 |
| 2030 (60) | -74,933.41 | 288,416.14 | -82,902.69 | 3,267.72 | 133,847.75 | 70,435.34 |
| 2031 (61) | 133,847.75 | 57,767.90 | -84,975.26 | 5,598.62 | 112,239.01 | 57,623.48 |
| 2032 (62) | 112,239.01 | 59,212.09 | -87,099.64 | 4,428.45 | 88,779.92 | 44,467.89 |
| 2033 (63) | 88,779.92 | 60,692.40 | -89,277.13 | 3,160.25 | 63,355.43 | 30,959.34 |
| 2034 (64) | 63,355.43 | 62,209.71 | -91,509.06 | 1,787.94 | 35,844.02 | 17,088.38 |
| 2035 (65) | 35,844.02 | 63,764.95 | -93,796.79 | 305.14 | 6,117.33 | 2,845.26 |
| 2036 (66) | 6,117.33 | 65,359.07 | -96,141.71 | -1,294.93 | -25,960.24 | -11,779.99 |
| 2037 (67) | -25,960.24 | 66,993.05 | -98,545.25 | -3,019.40 | -60,531.84 | -26,797.62 |
| 2038 (68) | -60,531.84 | 68,667.88 | -101,008.88 | -4,875.82 | -97,748.67 | -42,218.17 |
| 2039 (69) | -97,748.67 | 70,384.57 | -103,534.10 | -6,872.16 | -137,770.35 | -58,052.44 |
| 2040 (70) | -137,770.35 | 72,144.19 | -106,122.45 | -9,016.80 | -180,765.42 | -74,311.53 |
| 2041 (71) | -180,765.42 | 73,947.79 | -108,775.52 | -11,318.64 | -226,911.78 | -91,006.84 |
| 2042 (72) | -226,911.78 | 75,796.49 | -111,494.90 | -13,787.04 | -276,397.23 | -108,150.07 |
| 2043 (73) | -276,397.23 | 77,691.40 | -114,282.28 | -16,431.88 | -329,419.99 | -125,753.24 |
| 2044 (74) | -329,419.99 | 79,633.68 | -117,139.33 | -19,263.60 | -386,189.23 | -143,828.70 |
| 2045 (75) | -386,189.23 | 81,624.53 | -120,067.82 | -22,293.21 | -446,925.73 | -162,389.10 |
| 2046 (76) | -446,925.73 | 83,665.14 | -123,069.51 | -25,532.33 | -511,862.43 | -181,447.47 |
| 2047 (77) | -511,862.43 | 85,756.77 | -126,146.25 | -28,993.23 | -581,245.14 | -201,017.16 |
| 2048 (78) | -581,245.14 | 87,900.69 | -129,299.91 | -32,688.83 | -655,333.19 | -221,111.88 |
| 2049 (79) | -655,333.19 | 90,098.20 | -132,532.40 | -36,632.79 | -734,400.17 | -241,745.74 |
| 2050 (80) | -734,400.17 | 92,350.66 | -135,845.71 | -40,839.50 | -818,734.73 | -262,933.19 |
| 2051 (81) | -818,734.73 | 94,659.43 | -139,241.86 | -45,324.15 | -908,641.31 | -284,689.08 |
| 2052 (82) | -908,641.31 | 97,025.91 | -142,722.90 | -50,102.76 | -1,004,441.06 | -307,028.66 |
| 2053 (83) | -1,004,441.06 | 99,451.56 | -146,290.98 | -55,192.23 | -1,106,472.70 | -329,967.60 |
| 2054 (84) | -1,106,472.70 | 101,937.85 | -149,948.25 | -60,610.36 | -1,215,093.47 | -353,521.98 |
| 2055 (85) | -1,215,093.47 | 104,486.29 | -153,696.96 | -66,375.97 | -1,330,680.10 | -377,708.30 |
| 2056 (86) | -1,330,680.10 | 107,098.45 | -157,539.38 | -72,508.85 | -1,453,629.88 | -402,543.52 |
| 2057 (87) | -1,453,629.88 | 109,775.91 | -161,477.86 | -79,029.92 | -1,584,361.75 | -428,045.05 |
| 2058 (88) | -1,584,361.75 | 112,520.31 | -165,514.81 | -85,961.20 | -1,723,317.45 | -454,230.78 |
| 2059 (89) | -1,723,317.45 | 115,333.32 | -169,652.68 | -93,325.93 | -1,870,962.75 | -481,119.04 |
| 2060 (90) | -1,870,962.75 | 118,216.65 | -173,894.00 | -101,148.61 | -2,027,788.70 | -508,728.70 |
| 2061 (91) | -2,027,788.70 | 121,172.07 | -178,241.35 | -109,455.04 | -2,194,313.03 | -537,079.10 |
| 2062 (92) | -2,194,313.03 | 124,201.37 | -182,697.38 | -118,272.47 | -2,371,081.51 | -566,190.13 |
| 2063 (93) | -2,371,081.51 | 127,306.40 | -187,264.82 | -127,629.60 | -2,558,669.52 | -596,082.18 |
| 2064 (94) | -2,558,669.52 | 130,489.06 | -191,946.44 | -137,556.66 | -2,757,683.56 | -626,776.21 |
| 2065 (95) | -2,757,683.56 | 133,751.29 | -196,745.10 | -148,085.56 | -2,968,762.92 | -658,293.75 |
| 2066 (96) | -2,968,762.92 | 137,095.07 | -201,663.73 | -159,249.91 | -3,192,581.48 | -690,656.87 |
| 2067 (97) | -3,192,581.48 | 140,522.45 | -206,705.32 | -171,085.13 | -3,429,849.48 | -723,888.27 |
| 2068 (98) | -3,429,849.48 | 144,035.51 | -211,872.95 | -183,628.56 | -3,681,315.49 | -758,011.25 |
| 2069 (99) | -3,681,315.49 | 147,636.40 | -217,169.78 | -193,119.09 | -3,943,967.96 | -792,286.27 |
| 2070 (100) | -3,943,967.96 | 0.00 | 0.00 | -207,058.32 | -4,151,026.27 | -813,542.73 |
