Wine trader finds even risk palatable

The last year has been tumultuous for Will Oldham, a 58-year-old who works in the wine trade. “Both my parents died earlier this year and so it seems like the right time to take another look at my financial position,” he says.

“I’m at the stage where I should start to think about my retirement and what I want to do with my time. I have three children and one grandchild and two of my children live abroad. I’d like to be able to travel and visit them more than I do now.”

Oldham’s job means he can afford to be fairly flexible with his future working plans. He earns income as a self-employed writer and teacher as well as from his retail business. “Christmas is a very busy time in the wine trade because everyone tends to leave wine as one of the last things they buy,” he says. “But generally I can move around and choose how much work I do throughout the year.”

Oldham recently bought a £540,000 flat in London which he will be moving into next week. He also owns a £260,000 rental property which earns him around £12,000 a year. He does not have a mortgage on either property.

Oldham keeps up to date with financial news and takes advice from his stockbroker as well as following his own hunches when making equity choices. He is willing to take some risks with investments that are surplus to his income. “I buy on bad news,” he says. “I think that the market can overreact to media stories, so I look out for those.”

Marc Ruse, certified financial planner at Swallow Financial says one would expect investors to move down the risk scale as they approach retirement. He says Oldham needs to think carefully about the level of risk he is willing to take with his investments.

One of the key ideas behind all successful long-term investments is asset allocation, according to Martin Walker, certified financial planner with Fiscal Engineers. “At present Oldham’s portfolio is 66 per cent exposed to equities, 28 per cent property and 6 per cent in cash and wine. This is relatively high risk, especially as the property exposure is limited to one property.”

Ruse suggests Oldham thinks carefully about whether he needs to hold on to his rental property. “The current level of yield (4.6 per cent) is less than could be obtained from a cash deposit account,” he says. “However the potential for future capital appreciation and rental incomes could be factors in Oldham deciding to keep the property.”

Walker recommends that Oldham change his asset allocation strategy by introducing fixed-interest investments such as gilts and corporate bonds. He also believes that Oldham should use asset class funds rather than holding direct equities. “An asset class fund delivers the return of individual asset classes without the expense of a fund manager,” he says.

To make his portfolio more tax-effective, Jason Witcombe, certified financial planner at Evolve fp, recommends taking advantage of the capital gains allowance. “The annual allowance is £8,800. Once you have retired, you could realise gains of this amount each year to substitute your income. This will be free of any tax,” he says.

Witcombe recommends that Oldham considers an offshore investment bond. “The attraction of this is that the fund would have gross roll-up – i.e it is not subject to capital gains or income tax. Any tax payable is deferred until the bond is encashed. You can take an “income” (really a return of capital) of up to 5 per cent free of any immediate taxation every year.” On Oldham’s £225,000 portfolio this would create £11,000 every year.

When his parents died, Oldham inherited £500,000 which he would like to use to increase his retirement income. “I’m not too worried about building up capital and I won’t let inheritance tax planning rule what I do,” he says. “My children all have property of their own and are well provided for, so I’m not too worried about what I leave for them.”

Witcombe says that as leaving an inheritance is not one of Oldham’s priorities, he has a great deal of flexibility. All Oldham’s assets, except the wine portfolio and the principal private residence, can be used to generate an income, Witcombe believes.

Oldham has £107,000 in a Norwich Union pension and £30,000 in a self-invested personal pension (Sipp), which is invested in Aim companies. Ruse says that he should find out whether his Norwich Union plan can be brought under the umbrella of his Sipp.

Low annuity rates cause Oldham concern when thinking about his retirement prospects, and he’s right to be worried according to Ruse. “These are unlikely to improve,” he says. “However if Oldham is worried about the future performance of the stock market, buying an annuity sooner,rather than later could be the best decision he ever made – especially if he plans to live until a ripe old age.”

Name has been changed

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