Review my parents' financial position

AnotherJoe

itwasntme001 wrote: »

Can you do it so that the LPA is ONLY effective due to the parent(s) medically not able to make their own decisions anymore?

I think you may be under a misapprehension what it does. It doesn't mean you take over from them and they have no say - even if you tick the "effective immediately" box - . It just means you have documented authority to act on their behalf with their permission. They can rescind if they wish or just allow you to act in some respects only, let's say, dealing with their bank or their pension.

itwasntme001

Marcon wrote: »

Yes. The application form asks you to choose when it will be effective.

Do they have valid wills?

Ok understood. I will speak to them about this. Yes they have Wills, will get updated once they move home.

itwasntme001

jamesd wrote: »

Could spending £61.5k a year improve their life in any way? They can afford it. What about £90k? Spending far less than they could enjoy looks like the main concern.

With 18k for two years until state pension age and say 150k for the move in the next two years I don't agree with the earlier suggestion that 325k in cash is too much.

After allowing for the 186k cash drawing they have 629k of investable capital. This can provide a probably lifelong income of either:

1. £20k on a 30 year planning time, 3.2% of starting capital increasing with inflation, expected to leave more capital at death than they started with 95% of the time. The 4% rule, constant inflation-adjusted income.
2. £31k on a 40 year planning time, 5% of starting capital, usually increases with inflation but skips that, takes extra cuts or adds more depending on the investing times they live through. Not less safe than 1, just using spending flexibility to be more efficient.

Both require at least 50% in equities, the specifics vary.

So with £30.5k guaranteed income and a prudent 31k variable vs 12k minimum and 20k minimum desired income, do your parents have any interest in exploiting their annual income capacity of £61.5k? Is there any way at all that spending more could increase their quality of life?

Higher starting levels are possible if there's lots of spending flexibility or the way spending normally declines as people get older are factored in. With these done, £80-90k a year initially and gradually dropping below 50k in their mid 70s wouldn't be unreasonable. I've disregarded your father's inheritance which could take annual spending capability above £100k now and keep it above 65k after age 75 if inheritance is before then.

Your mother may be more comfortable deferring claiming her state pension and drawing from the investments instead. Assuming it's 8.5k that would add 4.93k inflation linked and take her to 13.43k a year plus what she gets from his annuity. Enough to easily cover essential spending and a nice holiday whatever happens to the investments, so she can be relaxed about them.

Their position isn't merely safe, it's superb.

Thanks James. Will pass on what you say to my parents. They will certainty be glad to hear it. Although they are set in their ways about spending. I think because they have seen what it is like to struggle financially. They have cheap hobbies also.

crv1963

itwasntme001 wrote: »

Can you do it so that the LPA is ONLY effective due to the parent(s) medically not able to make their own decisions anymore?

LPA only kicks in under the circumstances documented in it and the power never leaves the person granting it, it is only lent to the advocate when the person is unable to manage it themselves. Below is an explanation that I made on another site I visit. (Please forgive the length of it!)

Power of Attorney gives a designated person or persons the decision making power in either one or both areas- Health and Finances- in the event that the person giving up the power becomes unable to make the decision(s) for themselves.

For instance I may become demented or suffer a stroke and unable to manage my own investments in which case the person I've designated can step in and manage them for me in my best interest.

I may need a nursing home following illness/ an operation and be unable to choose one the person would do that on my behalf.
I may be in hospital awaiting discharge but adjustments need to be made to my home to make it safe for me to return there, the person can authorise those adjustments, including arranging a package of care be that temporary or permanent.

The power is never surrendered permanently so if I recover capacity it returns to me. Or I may be unable to manage my drawdown pension but can do my local shopping so the person takes over the income generating side of things and I get my income either into my bank account or as a weekly/ monthly allowance.

It is important to note the POA has to be agreed when I have capacity to do so not after I lose the capacity- that's a different and more expensive/ stressful process. I can also stipulate under what circumstances I surrender my decision making.

Obviously I would have to discuss with the person my wishes and they need to agree to do it. I would rather someone close took over my affairs than a Social Worker/ Nurse/ Discharge Team decide what is and isn't suitable for me. Clearly the person would need to ensure they took advice over what I need but they help choose where I go for this.

The same with finances I may need someone to pay my bills as I find it too confusing the person sorts this out.

Sorry for the long post I wanted it to be clear and think examples help understanding.

Mrs CRV and I are early/ mid 50s and are sorting our LPA out at the present time.

jsinc

12.5k annuity + 18k SP is already above their total spending.

Add conservative withdrawal rate of 2.5% * 490k = 42.8k pa
https://media.morningstar.com/uk%5CMEDIA%5CResearch_paper%5CUK_Safe_Withdrawal_Rates_ForRetirees.pdf (p.12)

Still leaves 325k cash - 150k for house - whatever used to make up for 2 years without SP. Looks fine to me given 20k pa assumed spending, even before inheritance factored in.

When my mum asked me the same thing I put together a 'future finance' spreadsheet for her. Basically a budget projection listing all sources of income, expenditure and investments across future years. From that we split expenditure into essential and discretionary to give required income floor to cover essentials. This floor will be met by SP + DB Pension + Annuity from DC Pension to make up the difference. Residual DC Pension + other investments above the floor will probably be invested or spent differently. (It gets regularly updated and adjusted and can then make it as detailed as you like: assessing State Pension deferral to make up for fixed annuity, formulas to more accurately project future capital and returns, accounting for fees, nominal/real, reinvesting surplus income, pension fund price inputs, scenario modelling etc).

That process clarified things and eased concerns. In your parents' case, even with no inflation linkage in the annuity their required income is met by that + SPs + (investable) cash buffer if required. If anything they should increase spending on themselves. Seems main issue will just be how best to access (and invest) their SIPP/ISA monies during retirement and utilise or invest the cash. I don't know if that warrants using an IFA, but it's a nice problem to have.

itwasntme001

crv1963 wrote: »

LPA only kicks in under the circumstances documented in it and the power never leaves the person granting it, it is only lent to the advocate when the person is unable to manage it themselves. Below is an explanation that I made on another site I visit. (Please forgive the length of it!)

Power of Attorney gives a designated person or persons the decision making power in either one or both areas- Health and Finances- in the event that the person giving up the power becomes unable to make the decision(s) for themselves.

For instance I may become demented or suffer a stroke and unable to manage my own investments in which case the person I've designated can step in and manage them for me in my best interest.

I may need a nursing home following illness/ an operation and be unable to choose one the person would do that on my behalf.
I may be in hospital awaiting discharge but adjustments need to be made to my home to make it safe for me to return there, the person can authorise those adjustments, including arranging a package of care be that temporary or permanent.

The power is never surrendered permanently so if I recover capacity it returns to me. Or I may be unable to manage my drawdown pension but can do my local shopping so the person takes over the income generating side of things and I get my income either into my bank account or as a weekly/ monthly allowance.

It is important to note the POA has to be agreed when I have capacity to do so not after I lose the capacity- that's a different and more expensive/ stressful process. I can also stipulate under what circumstances I surrender my decision making.

Obviously I would have to discuss with the person my wishes and they need to agree to do it. I would rather someone close took over my affairs than a Social Worker/ Nurse/ Discharge Team decide what is and isn't suitable for me. Clearly the person would need to ensure they took advice over what I need but they help choose where I go for this.

The same with finances I may need someone to pay my bills as I find it too confusing the person sorts this out.

Sorry for the long post I wanted it to be clear and think examples help understanding.

Mrs CRV and I are early/ mid 50s and are sorting our LPA out at the present time.

Thanks and no need to be sorry, its a very useful post.

itwasntme001

jsinc wrote: »

12.5k annuity + 18k SP is already above their total spending.

Add conservative withdrawal rate of 2.5% * 490k = 42.8k pa
https://media.morningstar.com/uk%5CMEDIA%5CResearch_paper%5CUK_Safe_Withdrawal_Rates_ForRetirees.pdf (p.12)

Still leaves 325k cash - 150k for house - whatever used to make up for 2 years without SP. Looks fine to me given 20k pa assumed spending, even before inheritance factored in.

When my mum asked me the same thing I put together a 'future finance' spreadsheet for her. Basically a budget projection listing all sources of income, expenditure and investments across future years. From that we split expenditure into essential and discretionary to give required income floor to cover essentials. This floor will be met by SP + DB Pension + Annuity from DC Pension to make up the difference. Residual DC Pension + other investments above the floor will probably be invested or spent differently. (It gets regularly updated and adjusted and can then make it as detailed as you like: assessing State Pension deferral to make up for fixed annuity, formulas to more accurately project future capital and returns, accounting for fees, nominal/real, reinvesting surplus income, pension fund price inputs, scenario modelling etc).

That process clarified things and eased concerns. In your parents' case, even with no inflation linkage in the annuity their required income is met by that + SPs + (investable) cash buffer if required. If anything they should increase spending on themselves. Seems main issue will just be how best to access (and invest) their SIPP/ISA monies during retirement and utilise or invest the cash. I don't know if that warrants using an IFA, but it's a nice problem to have.

The plan is to keep the SIPPs untouched so that it is outside their estate and to keep topping up the SIPPs with the £3600 a year each.

AnotherJoe

Just to emphasise, and the forms make this clear, in most cases its preferable to make the POA effective immediately, because otherwise,as the form itself say, you may have to prove each time you use it that the person has lost mental capacity.

You cant, for example just sell your dads house if he doesn't want that, just because he signed immediate he is still in control !

Malthusian

itwasntme001 wrote: »

Can you do it so that the LPA is ONLY effective due to the parent(s) medically not able to make their own decisions anymore?

Yes, but it is a bad idea. It prevents you using it if the parent is compos mentis enough that they can't be certified as having "lost capacity" but are nonetheless struggling to make decisions, or are physically unable to sign documents.

If you don't trust someone to have Power of Attorney when you are still compos mentis, you shouldn't appoint them as your attorney at all.

If you appoint someone to have Power of Attorney while you are still compos mentis they cannot get you thrown in the loony bin or empty your bank account (at least not that way). Until you have lost capacity you can override anything they say and remove them as attorney.