If you’d like to discuss your finances with a professional, you can connect with Luke and Anick here: https://www.viderefinancial.com/contact
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Get your free verifiable CPD for this episode here >>> https://www.dentistswhoinvest.com/videos/how-to-achieve-the-best-exit-number-for-your-dental-practice-with-luke-hurley-anick-sharma
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Are you holding onto your dental practice longer than needed? The quest for the "highest valuation" might actually be costing you precious years of freedom.
In this illuminating discussion, financial planners Luke Hurley and Anik Sharma reveal the critical distinction between maximizing practice value and achieving your personal financial independence. Through real-world examples and comprehensive cash flow modeling, they demonstrate how dentists can determine their actual "number" – the amount needed to fund their desired lifestyle without financial constraint.
The conversation challenges conventional wisdom about retirement age and practice exit timing. Rather than clinging to arbitrary targets or industry benchmarks, our experts walk through how to reverse-engineer your financial needs, taking into account existing assets, pensions, and investment portfolios. This approach often reveals that many practice owners are already closer to financial freedom than they realize.
Financial planning software vividly illustrates how even modest practice valuations, combined with accumulated wealth in pensions and investments, can provide sustainable income well beyond traditional retirement age. The discussion includes important considerations around sequence risk, tax optimization, and the psychological aspects of transitioning away from practice ownership.
Perhaps most valuable is the exploration of what retirement actually means in today's world. Far from the outdated concept of "being put out to pasture," financial independence offers the freedom to choose how you spend your time – whether that's continuing clinical work on your terms, pursuing new business ventures, dedicating time to family and travel, or exploring entirely new passions like the former solicitor who became a flight instructor.
Ready to discover your number and gain the clarity that comes with knowing exactly when you could sell your practice? Listen now and claim your free verifiable CPD by completing the questionnaire through the link in the description.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dr James (00:00):
What's up everybody.
Welcome to another podcast inthe Dentists Who Invest platform
podcast slash webinar, just tobe strictly accurate.
And this is all about how youcan get the best inverted commas
.
And the reason I'm doing airquotation marks is because how
do you actually define the best?
As well, we're gonna delve intothe philosophy of that, because
the best doesn't always meanthe highest, particularly when
(00:21):
it means that you're clinging onfor a few more years of
practice ownership, whereas inreality you might just want to
go ahead and pull the triggermore on that discussion in just
a second, but just before we do,welcoming my two guests this
evening who are going to bespeaking on this exact subject,
mr Luke hurley and mr Anicksharma, I'm also happy to share
that there is free verifiablecpd associated with this episode
(00:43):
.
Whenever you finish the episode,all you have to do is click the
link in the podcast description.
It'll take you right throughthe Dentistry Invest website.
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
(01:04):
contribute towards yourverifiable CPD hours during this
learning cycle.
Guys, do we even need intros atthis point?
Possibly I don't think that'sfor either Luke or Anick to say,
no, we don't need intros.
No, we don't need intros.
So I'm semi-joking.
Maybe it might be nice to havea bit of a recap.
Luke (01:25):
Eh, just a hello yeah sure , um thanks, James.
Uh, also, I'm Luke um financialplanner.
Been helping dentists now forabout 15 years, believe it or
not um with their financialplanning needs.
Uh, and we've got uh annickwith us as well today.
Hi Anick.
Anick (01:44):
Hi Luke.
Thanks for that, James as well.
Yeah, hi everyone.
Similar to Luke, I've been afinancial planner for quite a
while now, helping businessowners, dentists, etc.
With financial planning needsand gearing up for later life,
essentially, and whatever thatmight look like from one person
to another.
Dr James (02:03):
Brilliant.
So let's jump in with the meatand potatoes this evening.
What is the best number?
So there's two real componentsto this.
I mean, there is increasing thevaluation and profitability of
your practice, and then there'sthe whole other side to it, and
insofar as, how do we know whattarget or what valuation we're
aiming for in order to, let'sjust say, we want to sail off
(02:26):
into the sunset as in retire, orcertainly how most people would
conventionally view the conceptof retirement?
But of course, we want to justmake it super clear that that
doesn't mean that you have tojust down tools and never do any
work for the rest of your days,because for a lot of people,
that's actually not what theirversion of retirement looks like
, and I, like I just want tomake that so clear.
(02:47):
It's not that you don't have todo anything, but you have the
option and you've got thefinancial means to be able to,
at your leisure or at your will,decide how much you know active
pursuits you want to have everysingle week, whether that be
continuing to do a little bit ofwork or not, or doing whatever
the heck you want.
That's the whole point.
(03:07):
So that's how we're definingthe concept of retirement and
sailing off into the sunsettoday.
And, like I say, here's thething let's say.
I'll give you an example.
You know, it's very common thatwe're trained or we have this
sort of internal belief that weneed to cling on to get the
highest valuation possible forour practice.
But if it means that we'reclinging on for a few years,
(03:27):
this is just an example, ofcourse, but it means that we're
clinging on for a few yearsthree, four more years of
practice ownership versus wecould have just pulled the
trigger and made an exit at aspecific time that because we
calculated the numbers and donethe maths, we know that that
would have given us enoughanyway.
So if we're clinging on for afew more years of practice
ownership when we don't have to,that's kind of what we're
(03:50):
getting at today.
Knowing your number in terms ofyour financial independence
number will allow you to helpmake that decision.
And this is also particularlytrue if you've been contributing
to investment accounts yourwhole life, like a pension or an
ISA.
So in other words, theredoesn't all of your retirement
pot doesn't necessarily have tocome for your business.
So we need to factor those intoand all of a sudden you can
(04:12):
begin to see just how manymoving parts there are here.
So that's what we're getting atthis evening.
So there's two real sides to thebest number, I guess, for your
dental practice.
The first one would be activelytaking measures to increase the
profitability and then,therefore, valuation of your
business.
And then the second side ofthings is what I was talking
about just a second ago, whichis crunching the numbers and
(04:33):
understanding just what thatnumber is, that financial
independence number we talkedabout a second ago.
So if we just revert to what Iwas saying, first side of things
is increasing the valuation ofthe business.
We're not going to be coveringthat in super great detail
tonight, except to say that,well, all the obvious stuff
would be included in that bucketwith regards to investing in
the business.
(04:53):
So that would be investing inequipment, investing in your
staff, for example, maybebringing certain specialities
into your practice.
There's a whole conversationthere about how much, uh, nhs
dentistry you do versus privatedentistry you do, what
proportion of mixed.
It seems to shift every singleyear as to what practices uh,
(05:16):
you know, have the, you know,carry the highest multiple in
terms of their setup.
It varies a little bit.
It's not really our fieldspecifically, of expertise in
order to cover that in greatdetail tonight.
That's where getting a practicevaluation and speaking to a
broker can really help, orperhaps some form of mentorship
within your business.
So it's good to know that thosethings exist and it's good to
(05:38):
know that that is one half ofthe equation, but what about the
other stuff?
What about how we can actuallyfigure out what that number is
in order to say what ourfinancial independence number is
and in order to say how much weneed to be able to sail off
into the sunset?
Well, that's where constantnumbers really helps, doesn't it
, Luke?
Luke (05:54):
Yeah, 100%, and I think you made the point speaking to
getting a team of professionalslined up in advance of a
potential exit.
Getting a team of professionalslined up in advance of a
potential exit, um, particularly, you know, if you, if you're to
get a professional valuation inquite early to help guide
improvements as you ready reallya business for exit.
Um, I think that the core themereally is planning, and
(06:16):
obviously I would say that I'm afinancial planner, but for us,
you really want to startplanning that exit.
I would say three to five yearsin.
There's a lot more that you canbe doing with that sort of
run-in, as opposed to kind ofmaking the decision sort of a
bit more last minute.
So, really good, if you can getthree to five years in advance,
(06:38):
then that enables you to makethe improvements if required and
get things lined up.
Enables us to do some workaround figuring out what your
number is, getting the financialplanning side of things
optimized in advance as well Interms of how we go about doing
that and how we help people workout what they need and ie how
(07:00):
much is enough for them toreally switch off the tap in
terms of wealth creation andinstead, you switch to being
dependent on the wealth thatyou've created to fund your
lifestyle because you're nolonger able to work or your
business has been sold.
(07:20):
So the way we go about that isusing software primarily.
We go through a full session interms of defining what
somebody's vision is.
Uh, can I share my screen,James?
I've got something I can Ibelieve so.
Dr James (07:32):
There's a little button at the bottom there it
says share.
Let's have a look.
Yeah gotcha.
Luke (07:43):
So the first thing we do uh, let's not pull through yet,
has it?
Let me know when it's showing?
Yeah, we're good the firstthing we want to do is define
what somebody's vision is youknow, start with the end in mind
.
So for us that means getting toknow what the, the, the why is
of the plan, but also alsodrilling down into what your
goals and objectives are, sothat can be, for most people,
(08:08):
your lifestyle need.
So how much money do you needevery year for the rest of your
life to spend on living, justliving life, enjoying yourself,
achieving all of the things thatyou had planned when you finish
work?
So there's an annual amountthat we need to plan towards an
annual lifestyle cost that's notgoing to be static all the way
(08:29):
through.
That's clearly going to changeas you get older.
For me, I draw up a timelinefor clients.
This is just a demo exampleclient somebody that's going to
be working in the run-up totrying to exit at age 50.
I've broken down what I wouldcall their timeline, which is
running from their age nowthrough to age 100, into
(08:51):
different stages or phases.
So we've got phase one, thefirst phase of retirement.
That's where they're going tobe more active, they're going to
be spending more money.
I've got that running throughto age 80.
And then I've got phase two,which is where they're going to
be from 80 to 95, slowing down,spending less money on life.
And then I've got the finalfive years of life.
I've got some extra, quiteexpensive numbers there for
(09:14):
possible care costs to reallystress test their plan.
So we've made some assumptionsabout how much money they need
every year, net of tax, to spendon lifestyle.
Lifestyle is the key thing hereand it's different for everybody
.
I meet lots of people andeverybody has a different
lifestyle.
Everybody has differentpreferences on how they want to
spend their money and how theywant to align their money with
(09:34):
achieving their objectives andalso being in alignment with
their values.
So everybody is different andwe go through a whole process to
help people work out exactlywhat they need in terms of what
their lifestyle cost is going tobe, or certainly getting as
close to it as possible.
What I would say and I've saidthis on previous webinars and
(09:54):
podcasts people's preferencesfrom experience don't suddenly
change overnight.
You know you don't suddenlychange your hobbies and your
interests night.
You know you don't suddenlychange your hobbies and your
interests, and so a very goodstarting point is to to work out
exactly what you're spendingnow and be intentional about
ensuring that you know whatyou're spending and that having
a spending plan and then thatleads into when you've stopped
(10:16):
work, because that's thestarting point.
You may want to increase yourspending on various items.
You might want to travel more,you might want to gift more
money to family members,whatever it might be.
But the starting point is howmuch does it cost to run your
household?
What are your essentialoutgoings?
How much do you want to spendon the finer things in life,
having some fun?
So we cost all of that up andwe enter that into the system
(10:39):
and we attach that to variousphases.
So if you can see my screen,you can see how that is broken
down and how different phases wecan attach different numbers to
.
So for this particular client,in their first phase of
retirement, I've got them as ahousehold spending £120,000 net
of tax all the way through toage 80.
I've then got that droppingdown quite significantly because
(11:02):
we're making assumptions hereFrom age 80 to age 95, I've got
them spending 60k per annum.
Again, it probably wouldn't besuch a steep decline, but this
is just a demo example.
So once we've worked out whatthe annual projection of
lifestyle costs is going to be,we then might want to consider
some one-off costs, somemilestone goals.
(11:23):
Now, that might be gifts tochildren, it might be paying for
weddings, it might be maybe anew business venture, it could
be anything.
Everybody's got different goalsand objectives and our role is
to help define those.
But those could be differentmarkers that we place on the
plan for different events,different milestones.
Some of these markers tie intofinancial events.
(11:44):
So this here you can see is aclient beginning their NHS
pensions.
So some of these markers aremore financial related.
These markers here is becausethese demo clients have a son
here at university and they havea cost that's attached to that
and you know we can attach avalue to what that's likely to
(12:06):
require in the plan.
So once we've defined ourtimeline and we've put some
numbers in in terms of therequirement, lifestyle, wise,
milestone goals, we can thenwork out what the current assets
and resources are in the planto try and achieve those
objectives.
And that requires us doingquite a deep dive on somebody's
personal finances and workingout what their current sources
(12:28):
of income are.
So this client, their businessowners, they're taking drawings
from their, from their practicehusband and wife partnership.
They're set up as a limitedcompany.
They're taking some salary andsome and some dividends.
They're keeping themselvesbelow the hundred thousand pound
threshold because they've gotthe rent from the practice
freehold here, a commercialproperty that is being paid to
(12:49):
them directly as rental incomeand they are going to keep hold
of that property because that'spart of their retirement plan.
We attach, obviously,assumptions that these drawings
are going to stop at this pointwhen they sell their business.
Their aim is to sell at age 50.
We then have their savingsinvestments.
(13:13):
So this client has modest ISAsavings.
They've just got 20K each inISAs.
They've got some property theirmain residence.
They've got the freehold of thepractice.
They've got some property theirmain residence, they've got the
freehold of the practice andthey've got a valuation here for
the goodwill which I've justentered as £1 for reasons which
I will reveal later.
But we are just currentlyvaluing their practice goodwill
(13:33):
at £1.
They have pensions.
So they both have SIPs.
They both have NHS pensionsrelatively modest because it's
now predominantly a privatepractice and they've got some
state pension entitlements.
I've just seen that that islast year's figure so we can
update that.
The final thing I said isthey've got a residual main
residence mortgage here thatneeds to be cleared at the point
(13:56):
of retirement so that they cango into their retirement
debt-free.
In the background of this,obviously we're making
assumptions for inflation,investment growth and various
other factors which we won't gointo now.
But we, I would say that we arevery conservative with our
assumptions.
We would always be cautiousabout what we're assuming.
So what the next step really isthat the client will have a
(14:20):
balance sheet.
We want to sense, check thatwith the client, very similar to
a business.
We want to look at thehousehold and view their balance
sheet and we want to just checkall their numbers.
And then we're going to have alook at their cash flow chart.
So their cash flow chart is theblack line represents a year's
worth of spending.
(14:40):
So that's how much they need ineach given year.
That includes tax.
So that's all factored in.
I'm just going to remove all ofthat.
So that's the total amount theyneed each year for the rest of
their life.
Effectively's various spikes onhere, including.
You can see right at the end.
You can see those care costs,expensive care costs.
(15:01):
You can see the drop down inincome when they go from phase
one to phase two because they'respending less money, uh, when
they're, um, when they'reslowing down slightly in their
80s, I believe typically you.
The stat is that you spendroughly 40 less in your 80s than
you do in your 60s, so it'swell worth us making some
assumptions for that.
The reason why there's a bit ofa mix up here is because of at
(15:23):
the moment where the systemthinks that that's coming from
it thinks it's coming from apension and there's tax factored
into that.
This spike here is becausethere's a gift.
You've got a hundred thousandpound gift being given to their
son at that point when they turnage 60.
But you can see there's red onthe plan.
These other elements that we'relooking at and we're layering
(15:44):
up are sources of income.
So the pink is an assumedamount that's coming in from the
commercial property.
In reality, it's likely thatthey would sell that at some
point, but we've got thatrunning all the way through for
now.
We've got got a dark blue,which is a state pension or two
state pensions for the clientkicking in at their state
pension age.
We've got the green, which isthe nhs pensions kicking in at
(16:05):
65 2008 section, and we've got asmall amount, which is the ices
in the light blue.
Now what we haven't got onthere clearly is the sale of a
practice, and there's a.
There's a reason for that,because we can reverse engineer
things to allow the system totell us what do the clients need
when they do aim to sell theirpractice.
Dr James (16:25):
Look.
Can I just point out somethingthat maybe it's.
How can I say this?
It kind of struck me fromlooking at that graph.
In this particular example,which probably not unheard of
there's a little bit of ashortfall you can see there in
the red okay, but there's not agreat deal.
You know, they're actuallyclose-ish.
So I guess there's probably alot of people who are just
clinging on from this hugewindfall, from their practice,
(16:47):
whenever it's actually marginal,where they need to get to in
terms of their uh, you knowmoney, you know income in order
to sustain themselves.
I think, as a general trend?
Luke (16:59):
I think people don't, because they don't go through
these exercises, I think theyoverestimate the amount that
they need and they undervaluesome of the assets and resources
that they've got in place,particularly around state
pensions, nhs pensions and so onand so forth.
And so I do see it's quitecommon for people to be really
quite surprised when we kind ofreverse engineer this and look
(17:20):
at actually, this is how muchyou could spend, um, and these
are your options.
And so I do see that quite alot.
Um, I would say that the realvalue in this process I'll say
this now is when we talk aboutplanning and we talk about
having enough.
Everybody's number one fear whenthey're retiring or selling
their business is whetherthey're going to run out of
(17:40):
money.
Ultimately, that's the numberone fear Am I going to run out
of money?
And so the fear of not havingenough can be really quite
detrimental, and I would arguethat it's just as detrimental as
not having enough money,because if you don't know the
trajectory you're on and youdon't know that you're on the
right course, and you don't knowthat you have enough, you could
be living the life of somebodythat doesn't have enough.
(18:00):
And so doing this exercise inthe lead up to an exit or a
retirement gives people thatpeace of mind to say we're on
the right path here, and thenthey can come back into the
present and make informeddecisions about how they choose
to allocate their resources inthe time that they have left.
Because ultimately, you know,our precious and number one most
(18:21):
precious resources is time and,uh, you know time, time is very
much finite, whereas the youknow.
So what we're looking toachieve here is to give people
that peace of mind to say youhave enough money.
This is how much you need tosell your practice for.
Um, you know, this is yournumber.
This is how much you need tosell your practice for.
You know, this is your number.
This is how much.
If you continue on the path thatyou're on, this is how much you
(18:41):
could spend when you do exityour, your business.
And it opens up thepossibilities.
And then we sit down and say,well, let's look at those
possibilities.
What would you, in an idealworld, what would you want to
achieve between now and thepoint at which you, you do pass
away?
Um, what, what's reallyimportant to you?
And we can attach some, some,some figures to that and that
(19:02):
might be.
There's only really two thingsyou can do with money, right?
You can either spend it or giftit in one way or another.
There are really only twothings you can do with money, so
we either.
If there's too much money inthe plan, then we either need to
plan or give more um so whatI've run here is the, the
results of of that.
(19:23):
That.
That kind of calculation isthat this client needs, at the
point of exit, a net figure of778,516 pence um, which is very
good because actually, uh, theirpractice is worth a million
pounds.
So let's put that back in.
Come back to the cash flowchart.
(19:47):
Now there might be some changesthat we make around ensuring
that this is as tax efficient aspossible, which obviously I'm
not doing now.
You can now see this injectionof cash on exit and you can see
the cgt that follows slightspike afterwards um.
But now it's about usoptimizing this plan and making
sure it's as efficient as wepossibly can.
(20:08):
Um.
And from that, the second partof the of the story, if you like
, is once we know that the cashflow for our clients, the rest
of the client's life, is takencare of, and then and they're on
the right track and theyhaven't got a shortfall we can
then look at the second part ofthe equation, which is how much
money are they actually going tobe left with?
And that comes back to that.
(20:30):
There's only really threeoutcomes for a financial plan.
You're either going to not haveenough, you're going to get it
just right, or you're going tohave too much.
And then the conversationshifts from do I have enough
money for retirement to?
Am I possibly going to die withtoo much in my personal name
and end up my heirs, mybeneficiaries, are going to pay
significant amounts ofinheritance tax, and that's at
(20:52):
40% over the allowance.
So that becomes a differentconversation where we then come
back to the plan and look at howwe can transition that wealth
to future generations and that's, in short, how we can give
people that clarity over whattheir number is.
If I just jump in, there.
Anick (21:11):
Luke, that was great.
Thanks for going through that.
There is so much value to beadded in this process.
I've seen firsthand whensomeone for going through that.
There is so much value to beadded in in this process.
I've seen firsthand whensomeone's going through a buying
and selling process.
It's so multi-disciplinarybecause you've got the various
bodies involved and quite oftenthere can be a lot of friction.
The buyer wants the lowestpossible price and the seller
(21:34):
wants the highest possible price, so naturally that friction can
stagnate the process completely.
Now, having gone through thisprocess, if I was a client, if I
was this person right here, ifI'm holding out for 1.5, 2
million pounds because in myhead that's what I've latched
onto, that I need this numberAll of a sudden now you're
(21:55):
saying I only need circa 800,000net of tax.
It removes the frictioncompletely and we can just get
cracking with this sale.
And all of a sudden I can thinkabout later life and retirement
and spending money with the kidsand traveling and and getting
that meaningful, meaningfulamount of life.
And you said as well, on theflip side, if you have too much
(22:15):
money, then then what can you do?
Getting this right is soimportant because, well, quite
obviously, this person has toomuch money and if we know what
our number is, we can beconscious about the tax
consequences, the financialplanning elements such as is it
appropriate to maybe move someshares around pre-exit to try
(22:37):
and get some of that value outof your estate before the exit
happens?
And those sort of mechanismsare so powerful and so important
to get right because it's aone-time only event and once the
exit has happened you can missout on those windows of
opportunities which could impactyou, your life, your kids and
any potential wealth that'spassed on throughout the
(22:57):
generations 100 yeah you know,there's a great question that
someone's actually asked in thechat, which we're gonna come to
uh very soon.
Dr James (23:10):
But I like uh questions that I like and I
think are really fascinating toask to to people like yourselves
who have obviously been on theother side of the table to these
conversations is, in yourexperience and I think we
touched upon this earlier, youknow, but, Luke, you were saying
that it's quite frequently thecase that dentists have a little
(23:31):
bit too much rather than notenough.
And I was just interested, justas a sort of rule, or maybe not
so much a rule, or just in yourexperience, what's the earliest
you've ever seen anybody beable to sell their practice and
have enough to be able to retirein terms of age?
Maybe like mid 40s, 50s,something along those lines.
(23:51):
Because people and the reasonthat I ask this is we all have,
we're all conditioned to thinkthat we have to be a certain age
to be retired, right, likethere's like this subconscious
belief that we have to be 50s or60s or something along those
lines.
But retirement isn't an age somuch as it is an income number
and a level of wealtheffectively.
Luke (24:13):
So to answer the question in terms of the youngest, I mean
, I had a client who exited hisbusiness for a considerable sum
of money in his 30s and hadenough money there to never work
a day again.
But he's set up a dentalpractice recently because for
him it's not, it's a differentdimension, because for him it's
(24:34):
not it's a different dimension.
So, but you know he's done thatby choice, not out of necessity
, because he'd already achievedthat exit with a significant sum
that could have sustained himfor the rest of his life and his
family if he wanted that.
So it's very, very differentfor everybody, but it's powerful
(25:01):
when you've got that level ofclarity of knowing that you've
got enough, very powerful interms of your decision-making
process.
Dr James (25:08):
I think one thing that's very good to know and
I've seen you guys do it on thecash planning side of things
before is you've got a fixed agethat you can tap into your
pension and that's going to bewhat 57 in a few years, and a
lot of people are clinging onfor that age.
But realistically you mighthave a sizable pension.
You've got the exit from thebusiness and potentially some
(25:29):
other savings in an ISA or inyour own name or something along
those lines, and that can tieyou through to the pension as
well.
You don't have to get it all atonce right, but that's the
power of planning, isn't it?
Luke (25:41):
yeah, it's a really good point.
A lot of people latch on tothese numbers, these ages, and
often they're driven by normalpension ages, whether that be
private pension, like you'vementioned, or NHS pension, and,
in fairness, you have peoplethat don't fully understand how
you can access these pensions.
The NHS pension example youknow you don't have to continue
(26:04):
to 60 just to to benefit fromthe nhs pension.
Um.
So, yeah, completely right,it's about really knowing, uh,
what your assets and resourcesare, what your options are, what
flexibility there is, layeringthose up to ensure that you
don't have a shortfall everyyear for in the future, and then
, um organizing things in termsof the, the order in which you
(26:26):
access your, your differentassets and resources, whether
those be savings, investments,as you said, um private pensions
, ie sips, etc.
Uh, it might be nhs pensionsand the timings of those.
Dr James (26:39):
Those events are important, um, obviously, the
key there is to, to, to get, getthat right and not make
mistakes, and then it you knowit's um, they're expensive
decisions yes, and just toreiterate what you were saying
earlier about that particularchap that you were talking about
, who sold their business whenthey were in their 30s and they
(26:59):
have enough to sail off into thesunset should they so wish.
But they're going again withanother dental practice and
that's fine.
You know good on them.
I think sometimes people havethis fear that retirement means
that they just have to donothing.
It's not like that, it's just.
It's more peace of mind.
It's as much a peace of mindthing as anything else to know
that you don't, no matter whathappens, you've got enough.
(27:23):
But like I was saying, like wewere talking about on this
webinar, crunching the numbersis a huge part of that.
Luke (27:29):
Guys, just on that, James, I've got a really good example
of that, I think one of my.
I had a client some time agocome to me and we went through
this exercise and we worked outthat they had enough money as a
household, they were perfectlycomfortable, they had secure
sources of income and they wereon the right, on the right path.
(27:51):
And as part of the visionvision exercise, his, his main
interest and love was flying.
Uh, he was actually he wasn't adentist, actually he was a, he
was a solicitor, um, and he wasable to organize his retirement
as soon as he realized he hadenough money.
And, uh, since then he's beenworking as a flight instructor,
teaching people how to fly, andhe spends his week doing what he
(28:14):
loves, which is his passion.
Um, I think retirement and wewill mention it in due course,
it it's about retirement doesn'tmean that you're, you know, put
out to pasture.
It could be you sell yourbusiness and you go on to the
next project.
It could be that you dedicateyour time to some other cause,
different for everybody.
I've seen lots and lots ofdifferent scenarios on that and
(28:35):
we go through exercises toreally work out what you know
the ideal future is for for aclient, and whether that be work
related or good causes orwhatever it might be leisure,
traveling or a mix, but that onealways stands out to me as
somebody that really embracedthe process and made quite
significant changes to their,you know, to the course of their
(28:58):
life really.
Dr James (29:01):
That's awesome, good to hear.
We are going to throw the micout to the audience very soon so
that anybody on this webinarcan ask any questions they like,
not just about what we'vespoken about, this even but even
in a broader sense anythingfinancial.
All of those questions arewelcome tonight.
Just before we do that, annick,Luke anything that you'd like
to say to wrap up I thinkthere's a couple different
(29:23):
components to this.
Anick (29:24):
So well there.
Think there's a couple ofdifferent components to this?
So well, there's more than acouple.
But from a purely financial,strategic perspective, it's that
adage of failing to plan, planto fail.
Now, getting your ducks in arow, ensuring you're improving
profitability.
(29:44):
It's really easy to get drivenon certain metrics EBITDA, or
whether you should be takingmoney out of the company or
making pension contributions andthe impact of multiples.
The key thing is that we'reevidencing growth over periods
of time.
We're understanding the impactof deal structures.
They can be so complicated.
What works for one person orsomeone you know of might not
(30:06):
work for the other, whetherthat's an asset sale or share
sale, understanding theimplications of earnouts and
deferred payments.
Tax planning, too, is a hugeone within this Business.
Asset disposal relief isessentially a relief on the
capital gains tax.
It's changed quite a bit overthe last few years and there are
(30:28):
plans for it to change movingforward.
So from April 26th that's goingto change to 18%.
I believe Just being organized,getting things in a row, can
can make such a huge financialdifference, as Luke has
demonstrated with the cash flowmodel, can make such a huge
financial difference, as Lukehas demonstrated with the cash
flow model.
By being as optimised as you can, then you can have more money
(30:49):
to do what you want and live thelife you want.
Getting a good team of dentalspecific brokers, solicitors,
financial planners around canadd value, particularly within
the context of what you'reaiming for people who have been
there and done it.
Some of the nitty gritty stufflegal preparation If this is
(31:09):
something you're serious about,engage with a solicitor early on
.
Get the due diligence sortedfinancials, contracts, nhs
information, et cetera, adheringto regulatory compliance.
Make sure all your housekeepingis in order.
And then for me don't get mewrong I absolutely love the
numbers and the financialaspects of it, and Luke touched
(31:32):
on it there.
It's so important to get theemotional and psychological
aspects sorted.
Throughout the process.
There is going to be a rollercoaster of emotions from pride,
fear, loss, excitement, sadnessthat this, this entity you've
built up, your baby, has nowbeen sold and given on to
someone else.
And all of a sudden, you mightnot like how they're driving
(31:55):
Plan ahead for life afterdentistry.
Luke mentioned the flyingexample before, and that's
brilliant.
It's so easy to latch on and sayfrom age 57, I'm going to live
life in the Bahamas sippingcoconuts every day, because
that's what we idealize, orpeople can idealize, as the
perfect retirement.
But what's perfect for youcould be different to someone
(32:17):
else.
So it's really important tohone in on your vision and we do
that a lot because it's yourlife.
It's not a rehearsal.
You only get one shot of it, soyou need to know what a good
retirement looks like for you.
It's really interesting in myclient meetings if I ask a
client what's what do you wantin your retirement?
What's the goal, what's theobjective?
(32:38):
Nine out of ten times people.
It takes a bit more promptingand deeper questions to get
there, which is fine.
It's my role.
If I ask you, what does a badretirement look like?
What's the worst possibleoutcome?
I call that the anti-goal.
People tend to know what thatis and it's really powerful
because once we know what wedon't want, we can start
(33:00):
thinking about what we do wantand what perfect looks like.
Have you had thoughts aboutretirement?
Is this what you want?
Again, people might like theidea of it, but in my experience
, the amounts of business ownersthat have then gone back to
work because it's not actuallywhat they wanted to do.
They saw the, the exit value.
(33:21):
They think they want to stopworking, but they get bored
after a few years and end upbeing an associate and then
equally hate their job becausethey're now working with someone
else.
It can be quite cyclical.
So, like Luke mentioned before,that example of someone who
retired in their 30s and wantsto go again that's absolutely
(33:43):
fine If that's what you want todo.
Have a really deep think aboutwhat you want to do, what you
want to get out of life.
There's been a shift withinsociety of what retirement looks
like.
Talk to people who've beenthere and have done it, fellow
peers, et cetera.
(34:03):
Then the other thing as well alot of you who have practices
when it comes to selling have astrategy in place to talk to
your staff, your patients, forthe transition, because a lot of
your patients have probablydealt with you for however long
Staff employees have had along-standing relationship and
(34:26):
all of their, their world, asthey know it, is changing and
with that comes the element oftiming and sensitivity.
Um, don't overlook theemotional aspects of of what a
retirement and exit looks like,because it is so powerful to get
right and making sure you'redoing the best thing for you
(34:48):
thanks for that and likewonderful stuff.
Dr James (34:49):
Well, guys, thank you so much for sharing your wisdom.
As ever, let's go ahead andthrow the mic out to the
audience.
Just as we were saying a secondago, guys, now is your
opportunity to ask any questionthat you like.
First come, first serve basiswe'll work through all the
questions that are in the chat.
So, looking over at the chatright this minute, first
(35:11):
question from amjad ali shoutout to amjad amjad asks what
size of investment portfoliodoes one need if I would like to
take 80 000 pounds net perannum throughout my retirement
eg 40 years without beingaffected by sequence returns?
Anick (35:32):
sequence returns risk eg combination of sip, isa gia
inequities so that is a questionthat needs calculating and
there's no point trying to pullsomething out of the air for no
reason.
I would say you mentioned aboutimpacting by sequence risk and
(35:53):
it sounds like that's somethingthat worries you a lot.
But then you go on to say aboutthe combination of SIP, icgia
and equities, icgia and equities.
If sequencing risk is really adriver for this worry, then
there's a wider question on thefinancial planning piece.
If you need that £80,000, doesit make sense for the current
(36:16):
asset allocation with how it'sinvested?
Maybe, maybe not?
It's impossible to say withoutknowing all of your
circumstances and situation.
The key thing is withsequencing risk is getting your
asset allocation right, becausewe have no control over capital
markets when a downturn mighthappen and we will never, ever
(36:40):
try to predict when that willhappen either.
Dr James (36:42):
Go on, Anick I thought you finished.
Anick (36:43):
Having a good strategy in place is so important to make
sure you're withstanding thepotential impact and whether
that's holding a bit more cashor making sure the portfolio is
powerful enough to try andrecover from that.
Look at what happened in 2020,the whole list trust situation.
Fixed interest went through thefloor.
(37:03):
Portfolio returns went throughthe floor as well.
Because of that impact of nothaving enough juice within the
equity piece of a lower equityportfolio, quite a lot of
portfolios out there in theuniverse have struggled to
recover from it because ithasn't had enough power to try
and get back from that sequencerisk.
Essentially.
Dr James (37:24):
And you know sequence risk is a really interesting
concept.
Would you be able to explain itin your words for people out
there who don't know what thatis?
Anick (37:36):
So it's essentially day one of retirement.
You're going to take £80,000out in one go.
Let's say If the market'sdropped by 10%, then that
£80,000 is a bigger numberproportionally if you're a total
pot.
So let's say you had a totalpot of a million quid for
argument's sake then thatmillion pounds drops to £900,000
(38:01):
.
All of a sudden, the £,000pounds you're taking out is it's
a it's it's a big proportion ofthe entire pot overall.
Now, when you look at all ofthe data, it's really difficult
then because the portfolio hashad a bit of a beating and then
you're continuing to take onwithdrawals over the long term.
(38:22):
Now, if that's, you get thatwrong.
Portfolios can't really recoverbecause you're taking ongoing
withdrawals and it can be verydetrimental without good
financial planning and cashmanagement and asset allocation
and it can have a detrimentalimpact on future retirements and
those cash flow projectionsLuke showed before.
(38:44):
You can find yourself runningout of money quite easily unless
it's managed adequately.
Dr James (38:50):
Yeah, and just to add to that, the way I heard it
explained once.
Well, it was exactly that.
It's the sequence, the sequenceat which you take out
withdrawals from your account.
Right, you have have to.
The idea is that you wait untilthe market's more buoyant, of
course, because 10, a 10 drop inyour portfolio, well, we'd have
(39:10):
to crunch the numbers, butyou'd have to get a 15 gain to
get back to where you werebefore.
So that's how, the sequence ofwhich you take out withdrawals
from your account.
Well, it can affect how longit's going to last effectively
and whether or not you run outof money, but as, as you say, if
I'm correct, you can somewhatprotect yourself.
Again, it kind of comes back tothe cash flow thing we were
(39:30):
talking about before, becausereally, in an ideal world, we
should have started to cycle outsome of our portfolio away from
equities whenever we're goingto take money out.
So I'm going to say that thecash flow planning side of
things helps against sequencerisk.
Anick (39:44):
Yeah, absolutely.
Cash flow is key and for somepeople, reducing equity content
is one strategy, for others it'smaintaining an adequate amount
of cash.
It just depends on the personalsituation, circumstances.
The key thing is the cash flow.
Now, if someone's taking 80,000out a year for a couple of
years and it drops to 20,000pounds, then the likelihood is
(40:04):
that sequencing risk is notlikely to be detrimental.
It all depends on the thepersonal circumstances, what
that person's financial plan isand what the expenditure pattern
is likely to be in the futureas well yeah, of course, because
if you have income,supplemental income from other
assets, whether in sequencingrisk is, you know whether the
(40:25):
market drops.
You don't need the moneyimmediately if there are
guaranteed sources of income,say pensions, nhs, etc.
That can help protect theinvestment portfolio but listen.
Dr James (40:37):
Great question, because there was a lot to talk
about in there.
Luke (40:41):
Thanks for that, jad just one thing on that.
Can I share my screen again?
Yeah, if I can, again, yeah.
So one of the tools that we usewhich I'm not going to spend a
lot of time talking about butI'm just going to demonstrate
(41:02):
very quickly is a tool thatactually has historic investment
data going back to I believeit's 1915.
And we can tell the tool we usethis to sense, check a
financial plan.
We can tell the system what aclient is aiming to achieve from
their accounts and it willbacktest that using historic
(41:26):
data.
So the example presented in thequestion I think was 40 years,
for example, £80,000 a year.
Is that sustainable or not?
There's so many variables tothat which we can't go into now
the asset mix, targetedinvestment return, risk comfort
and so on and so forth, and tax,clearly.
(41:48):
But as a very quickdemonstration of how we can
really help get people thatpeace of mind of knowing that
they're not going to run out ofmoney, this fictional character,
john Smith, has an ISA with£1.6 million pounds in it and he
wants to draw 80,000 pounds ayear from his ISA for 40 years
(42:11):
until he's 105.
What we can do by clever piecesof technology is we can
backtest that and look at 828scenarios across the last 110
years of history and when welook at that in this example,
89% of the time he would nothave run out of money
(42:32):
effectively.
Now, there's so many variousvariables to that, so please
don't base your retirement onthat.
It's a very crude, simplecalculation alone.
However, this is really useful.
It shows us if you were tostart that journey, that 40-year
journey, at any pointhistorically, what would have
been the outcome the best, theworst and everything in between.
You can see the different startyears here and we can really
(42:56):
stress test using the worst thatmankind has kind of thrown at
us in the last 100 years.
I would say that this portfolioI've used here is 100% in
growth assets.
Again, that's something thatwould need to be assessed, but I
think the question did sayequities.
So just a demonstration, really, as to how you can use
(43:18):
technology to answer some ofthese questions.
Dr James (43:22):
Thank you.
There is, of course, the rathercrude rule of 4%, thank you.
There is, of course, the rathercrude rule of four percent.
Luke (43:25):
Isn't there, but there is and it is crude because of you
know.
You know, factoring in charges,factoring in the different
types of account uh, it was a usstudy.
No, you know, there's all sortsof um caveats to that.
But yes, if you're reading abook, um on the fire movement,
they would tell you to to applythe four percent rule.
(43:47):
Um, but we tend to go a bitmore scientific than that I
think with the four percent rule, bengen.
Anick (43:53):
Actually he came up with it in a time that's not as
relevant today.
There's actually a bit ofresearch more recently done and
four percent actually more likejust over three percent.
I need bigger pots of money, so, but for some people getting a
I wouldn't say ballpark, gettinga rough city worth, it can be
useful, um, but I would not bebasing retirements on off a four
(44:17):
percent rule or three point,whatever percent yeah, and
that's where the cash flow alsocomes in handy, because it's got
the tax and it's got the othersources that will supplement the
capital.
Luke (44:26):
So so you're not just relying on proceeds from
practice.
There might be other streams ofincome that that we need to
factor in.
What's up everybody.
Welcome to another podcast inthe Dentists Who Invest platform
podcast slash webinar, just tobe strictly accurate.
And this is all about how youcan get the best inverted commas
.
And the reason I'm doing airquotation marks is because how
do you actually define the best?
As well, we're gonna delve intothe philosophy of that, because
the best doesn't always meanthe highest, particularly when
(00:21):
it means that you're clinging onfor a few more years of
practice ownership, whereas inreality you might just want to
go ahead and pull the triggermore on that discussion in just
a second, but just before we do,welcoming my two guests this
evening who are going to bespeaking on this exact subject,
mr Luke hurley and mr Anicksharma, I'm also happy to share
that there is free verifiablecpd associated with this episode
(00:43):
.
Whenever you finish the episode,all you have to do is click the
link in the podcast description.
It'll take you right throughthe Dentistry Invest website.
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
which is entirely free.
What that means is this podcastepisode will be able to
(01:04):
contribute towards yourverifiable CPD hours during this
learning cycle.
Guys, do we even need intros atthis point?
Possibly I don't think that'sfor either Luke or Anick to say,
no, we don't need intros.
No, we don't need intros.
So I'm semi-joking.
Maybe it might be nice to havea bit of a recap.
Luke (01:25):
Eh, just a hello yeah sure , um thanks, James.
Uh, also, I'm Luke um financialplanner.
Been helping dentists now forabout 15 years, believe it or
not um with their financialplanning needs.
Uh, and we've got uh annickwith us as well today.
Hi Anick.
Anick (01:44):
Hi Luke.
Thanks for that, James as well.
Yeah, hi everyone.
Similar to Luke, I've been afinancial planner for quite a
while now, helping businessowners, dentists, etc.
With financial planning needsand gearing up for later life,
essentially, and whatever thatmight look like from one person
to another.
Dr James (02:03):
Brilliant.
So let's jump in with the meatand potatoes this evening.
What is the best number?
So there's two real componentsto this.
I mean, there is increasing thevaluation and profitability of
your practice, and then there'sthe whole other side to it, and
insofar as, how do we know whattarget or what valuation we're
aiming for in order to, let'sjust say, we want to sail off
(02:26):
into the sunset as in retire, orcertainly how most people would
conventionally view the conceptof retirement?
But of course, we want to justmake it super clear that that
doesn't mean that you have tojust down tools and never do any
work for the rest of your days,because for a lot of people,
that's actually not what theirversion of retirement looks like
, and I, like I just want tomake that so clear.
(02:47):
It's not that you don't have todo anything, but you have the
option and you've got thefinancial means to be able to,
at your leisure or at your will,decide how much you know active
pursuits you want to have everysingle week, whether that be
continuing to do a little bit ofwork or not, or doing whatever
the heck you want.
That's the whole point.
(03:07):
So that's how we're definingthe concept of retirement and
sailing off into the sunsettoday.
And, like I say, here's thething let's say.
I'll give you an example.
You know, it's very common thatwe're trained or we have this
sort of internal belief that weneed to cling on to get the
highest valuation possible forour practice.
But if it means that we'reclinging on for a few years,
(03:27):
this is just an example, ofcourse, but it means that we're
clinging on for a few yearsthree, four more years of
practice ownership versus wecould have just pulled the
trigger and made an exit at aspecific time that because we
calculated the numbers and donethe maths, we know that that
would have given us enoughanyway.
So if we're clinging on for afew more years of practice
ownership when we don't have to,that's kind of what we're
(03:50):
getting at today.
Knowing your number in terms ofyour financial independence
number will allow you to helpmake that decision.
And this is also particularlytrue if you've been contributing
to investment accounts yourwhole life, like a pension or an
ISA.
So in other words, theredoesn't all of your retirement
pot doesn't necessarily have tocome for your business.
So we need to factor those intoand all of a sudden you can
(04:12):
begin to see just how manymoving parts there are here.
So that's what we're getting atthis evening.
So there's two real sides to thebest number, I guess, for your
dental practice.
The first one would be activelytaking measures to increase the
profitability and then,therefore, valuation of your
business.
And then the second side ofthings is what I was talking
about just a second ago, whichis crunching the numbers and
(04:33):
understanding just what thatnumber is, that financial
independence number we talkedabout a second ago.
So if we just revert to what Iwas saying, first side of things
is increasing the valuation ofthe business.
We're not going to be coveringthat in super great detail
tonight, except to say that,well, all the obvious stuff
would be included in that bucketwith regards to investing in
the business.
(04:53):
So that would be investing inequipment, investing in your
staff, for example, maybebringing certain specialities
into your practice.
There's a whole conversationthere about how much, uh, nhs
dentistry you do versus privatedentistry you do, what
proportion of mixed.
It seems to shift every singleyear as to what practices uh,
(05:16):
you know, have the, you know,carry the highest multiple in
terms of their setup.
It varies a little bit.
It's not really our fieldspecifically, of expertise in
order to cover that in greatdetail tonight.
That's where getting a practicevaluation and speaking to a
broker can really help, orperhaps some form of mentorship
within your business.
So it's good to know that thosethings exist and it's good to
(05:38):
know that that is one half ofthe equation, but what about the
other stuff?
What about how we can actuallyfigure out what that number is
in order to say what ourfinancial independence number is
and in order to say how much weneed to be able to sail off
into the sunset?
Well, that's where constantnumbers really helps, doesn't it
, Luke?
Luke (05:54):
Yeah, 100%, and I think you made the point speaking to
getting a team of professionalslined up in advance of a
potential exit.
Getting a team of professionalslined up in advance of a
potential exit, um, particularly, you know, if you, if you're to
get a professional valuation inquite early to help guide
improvements as you ready reallya business for exit.
Um, I think that the core themereally is planning, and
(06:16):
obviously I would say that I'm afinancial planner, but for us,
you really want to startplanning that exit.
I would say three to five yearsin.
There's a lot more that you canbe doing with that sort of
run-in, as opposed to kind ofmaking the decision sort of a
bit more last minute.
So, really good, if you can getthree to five years in advance,
(06:38):
then that enables you to makethe improvements if required and
get things lined up.
Enables us to do some workaround figuring out what your
number is, getting the financialplanning side of things
optimized in advance as well Interms of how we go about doing
that and how we help people workout what they need and ie how
(07:00):
much is enough for them toreally switch off the tap in
terms of wealth creation andinstead, you switch to being
dependent on the wealth thatyou've created to fund your
lifestyle because you're nolonger able to work or your
business has been sold.
(07:20):
So the way we go about that isusing software primarily.
We go through a full session interms of defining what
somebody's vision is.
Uh, can I share my screen,James?
I've got something I can Ibelieve so.
Dr James (07:32):
There's a little button at the bottom there it
says share.
Let's have a look.
Yeah gotcha.
Luke (07:43):
So the first thing we do uh, let's not pull through yet,
has it?
Let me know when it's showing?
Yeah, we're good the firstthing we want to do is define
what somebody's vision is youknow, start with the end in mind
.
So for us that means getting toknow what the, the, the why is
of the plan, but also alsodrilling down into what your
goals and objectives are, sothat can be, for most people,
(08:08):
your lifestyle need.
So how much money do you needevery year for the rest of your
life to spend on living, justliving life, enjoying yourself,
achieving all of the things thatyou had planned when you finish
work?
So there's an annual amountthat we need to plan towards an
annual lifestyle cost that's notgoing to be static all the way
(08:29):
through.
That's clearly going to changeas you get older.
For me, I draw up a timelinefor clients.
This is just a demo exampleclient somebody that's going to
be working in the run-up totrying to exit at age 50.
I've broken down what I wouldcall their timeline, which is
running from their age nowthrough to age 100, into
(08:51):
different stages or phases.
So we've got phase one, thefirst phase of retirement.
That's where they're going tobe more active, they're going to
be spending more money.
I've got that running throughto age 80.
And then I've got phase two,which is where they're going to
be from 80 to 95, slowing down,spending less money on life.
And then I've got the finalfive years of life.
I've got some extra, quiteexpensive numbers there for
(09:14):
possible care costs to reallystress test their plan.
So we've made some assumptionsabout how much money they need
every year, net of tax, to spendon lifestyle.
Lifestyle is the key thing hereand it's different for everybody
.
I meet lots of people andeverybody has a different
lifestyle.
Everybody has differentpreferences on how they want to
spend their money and how theywant to align their money with
(09:34):
achieving their objectives andalso being in alignment with
their values.
So everybody is different andwe go through a whole process to
help people work out exactlywhat they need in terms of what
their lifestyle cost is going tobe, or certainly getting as
close to it as possible.
What I would say and I've saidthis on previous webinars and
(09:54):
podcasts people's preferencesfrom experience don't suddenly
change overnight.
You know you don't suddenlychange your hobbies and your
interests night.
You know you don't suddenlychange your hobbies and your
interests, and so a very goodstarting point is to to work out
exactly what you're spendingnow and be intentional about
ensuring that you know whatyou're spending and that having
a spending plan and then thatleads into when you've stopped
(10:16):
work, because that's thestarting point.
You may want to increase yourspending on various items.
You might want to travel more,you might want to gift more
money to family members,whatever it might be.
But the starting point is howmuch does it cost to run your
household?
What are your essentialoutgoings?
How much do you want to spendon the finer things in life,
having some fun?
So we cost all of that up andwe enter that into the system
(10:39):
and we attach that to variousphases.
So if you can see my screen,you can see how that is broken
down and how different phases wecan attach different numbers to
.
So for this particular client,in their first phase of
retirement, I've got them as ahousehold spending £120,000 net
of tax all the way through toage 80.
I've then got that droppingdown quite significantly because
(11:02):
we're making assumptions hereFrom age 80 to age 95, I've got
them spending 60k per annum.
Again, it probably wouldn't besuch a steep decline, but this
is just a demo example.
So once we've worked out whatthe annual projection of
lifestyle costs is going to be,we then might want to consider
some one-off costs, somemilestone goals.
(11:23):
Now, that might be gifts tochildren, it might be paying for
weddings, it might be maybe anew business venture, it could
be anything.
Everybody's got different goalsand objectives and our role is
to help define those.
But those could be differentmarkers that we place on the
plan for different events,different milestones.
Some of these markers tie intofinancial events.
(11:44):
So this here you can see is aclient beginning their NHS
pensions.
So some of these markers aremore financial related.
These markers here is becausethese demo clients have a son
here at university and they havea cost that's attached to that
and you know we can attach avalue to what that's likely to
(12:06):
require in the plan.
So once we've defined ourtimeline and we've put some
numbers in in terms of therequirement, lifestyle, wise,
milestone goals, we can thenwork out what the current assets
and resources are in the planto try and achieve those
objectives.
And that requires us doingquite a deep dive on somebody's
personal finances and workingout what their current sources
(12:28):
of income are.
So this client, their businessowners, they're taking drawings
from their, from their practicehusband and wife partnership.
They're set up as a limitedcompany.
They're taking some salary andsome and some dividends.
They're keeping themselvesbelow the hundred thousand pound
threshold because they've gotthe rent from the practice
freehold here, a commercialproperty that is being paid to
(12:49):
them directly as rental incomeand they are going to keep hold
of that property because that'spart of their retirement plan.
We attach, obviously,assumptions that these drawings
are going to stop at this pointwhen they sell their business.
Their aim is to sell at age 50.
We then have their savingsinvestments.
(13:13):
So this client has modest ISAsavings.
They've just got 20K each inISAs.
They've got some property theirmain residence.
They've got the freehold of thepractice.
They've got some property theirmain residence, they've got the
freehold of the practice andthey've got a valuation here for
the goodwill which I've justentered as £1 for reasons which
I will reveal later.
But we are just currentlyvaluing their practice goodwill
(13:33):
at £1.
They have pensions.
So they both have SIPs.
They both have NHS pensionsrelatively modest because it's
now predominantly a privatepractice and they've got some
state pension entitlements.
I've just seen that that islast year's figure so we can
update that.
The final thing I said isthey've got a residual main
residence mortgage here thatneeds to be cleared at the point
(13:56):
of retirement so that they cango into their retirement
debt-free.
In the background of this,obviously we're making
assumptions for inflation,investment growth and various
other factors which we won't gointo now.
But we, I would say that we arevery conservative with our
assumptions.
We would always be cautiousabout what we're assuming.
So what the next step really isthat the client will have a
(14:20):
balance sheet.
We want to sense, check thatwith the client, very similar to
a business.
We want to look at thehousehold and view their balance
sheet and we want to just checkall their numbers.
And then we're going to have alook at their cash flow chart.
So their cash flow chart is theblack line represents a year's
worth of spending.
(14:40):
So that's how much they need ineach given year.
That includes tax.
So that's all factored in.
I'm just going to remove all ofthat.
So that's the total amount theyneed each year for the rest of
their life.
Effectively's various spikes onhere, including.
You can see right at the end.
You can see those care costs,expensive care costs.
(15:01):
You can see the drop down inincome when they go from phase
one to phase two because they'respending less money, uh, when
they're, um, when they'reslowing down slightly in their
80s, I believe typically you.
The stat is that you spendroughly 40 less in your 80s than
you do in your 60s, so it'swell worth us making some
assumptions for that.
The reason why there's a bit ofa mix up here is because of at
(15:23):
the moment where the systemthinks that that's coming from
it thinks it's coming from apension and there's tax factored
into that.
This spike here is becausethere's a gift.
You've got a hundred thousandpound gift being given to their
son at that point when they turnage 60.
But you can see there's red onthe plan.
These other elements that we'relooking at and we're layering
(15:44):
up are sources of income.
So the pink is an assumedamount that's coming in from the
commercial property.
In reality, it's likely thatthey would sell that at some
point, but we've got thatrunning all the way through for
now.
We've got got a dark blue,which is a state pension or two
state pensions for the clientkicking in at their state
pension age.
We've got the green, which isthe nhs pensions kicking in at
(16:05):
65 2008 section, and we've got asmall amount, which is the ices
in the light blue.
Now what we haven't got onthere clearly is the sale of a
practice, and there's a.
There's a reason for that,because we can reverse engineer
things to allow the system totell us what do the clients need
when they do aim to sell theirpractice.
Dr James (16:25):
Look.
Can I just point out somethingthat maybe it's.
How can I say this?
It kind of struck me fromlooking at that graph.
In this particular example,which probably not unheard of
there's a little bit of ashortfall you can see there in
the red okay, but there's not agreat deal.
You know, they're actuallyclose-ish.
So I guess there's probably alot of people who are just
clinging on from this hugewindfall, from their practice,
(16:47):
whenever it's actually marginal,where they need to get to in
terms of their uh, you knowmoney, you know income in order
to sustain themselves.
I think, as a general trend?
Luke (16:59):
I think people don't, because they don't go through
these exercises, I think theyoverestimate the amount that
they need and they undervaluesome of the assets and resources
that they've got in place,particularly around state
pensions, nhs pensions and so onand so forth.
And so I do see it's quitecommon for people to be really
quite surprised when we kind ofreverse engineer this and look
(17:20):
at actually, this is how muchyou could spend, um, and these
are your options.
And so I do see that quite alot.
Um, I would say that the realvalue in this process I'll say
this now is when we talk aboutplanning and we talk about
having enough.
Everybody's number one fear whenthey're retiring or selling
their business is whetherthey're going to run out of
(17:40):
money.
Ultimately, that's the numberone fear Am I going to run out
of money?
And so the fear of not havingenough can be really quite
detrimental, and I would arguethat it's just as detrimental as
not having enough money,because if you don't know the
trajectory you're on and youdon't know that you're on the
right course, and you don't knowthat you have enough, you could
be living the life of somebodythat doesn't have enough.
(18:00):
And so doing this exercise inthe lead up to an exit or a
retirement gives people thatpeace of mind to say we're on
the right path here, and thenthey can come back into the
present and make informeddecisions about how they choose
to allocate their resources inthe time that they have left.
Because ultimately, you know,our precious and number one most
(18:21):
precious resources is time and,uh, you know time, time is very
much finite, whereas the youknow.
So what we're looking toachieve here is to give people
that peace of mind to say youhave enough money.
This is how much you need tosell your practice for.
Um, you know, this is yournumber.
This is how much you need tosell your practice for.
You know, this is your number.
This is how much.
If you continue on the path thatyou're on, this is how much you
(18:41):
could spend when you do exityour, your business.
And it opens up thepossibilities.
And then we sit down and say,well, let's look at those
possibilities.
What would you, in an idealworld, what would you want to
achieve between now and thepoint at which you, you do pass
away?
Um, what, what's reallyimportant to you?
And we can attach some, some,some figures to that and that
(19:02):
might be.
There's only really two thingsyou can do with money, right?
You can either spend it or giftit in one way or another.
There are really only twothings you can do with money, so
we either.
If there's too much money inthe plan, then we either need to
plan or give more um so whatI've run here is the, the
results of of that.
(19:23):
That.
That kind of calculation isthat this client needs, at the
point of exit, a net figure of778,516 pence um, which is very
good because actually, uh, theirpractice is worth a million
pounds.
So let's put that back in.
Come back to the cash flowchart.
(19:47):
Now there might be some changesthat we make around ensuring
that this is as tax efficient aspossible, which obviously I'm
not doing now.
You can now see this injectionof cash on exit and you can see
the cgt that follows slightspike afterwards um.
But now it's about usoptimizing this plan and making
sure it's as efficient as wepossibly can.
(20:08):
Um.
And from that, the second partof the of the story, if you like
, is once we know that the cashflow for our clients, the rest
of the client's life, is takencare of, and then and they're on
the right track and theyhaven't got a shortfall we can
then look at the second part ofthe equation, which is how much
money are they actually going tobe left with?
And that comes back to that.
(20:30):
There's only really threeoutcomes for a financial plan.
You're either going to not haveenough, you're going to get it
just right, or you're going tohave too much.
And then the conversationshifts from do I have enough
money for retirement to?
Am I possibly going to die withtoo much in my personal name
and end up my heirs, mybeneficiaries, are going to pay
significant amounts ofinheritance tax, and that's at
(20:52):
40% over the allowance.
So that becomes a differentconversation where we then come
back to the plan and look at howwe can transition that wealth
to future generations and that's, in short, how we can give
people that clarity over whattheir number is.
If I just jump in, there.
Anick (21:11):
Luke, that was great.
Thanks for going through that.
There is so much value to beadded in this process.
I've seen firsthand whensomeone for going through that.
There is so much value to beadded in in this process.
I've seen firsthand whensomeone's going through a buying
and selling process.
It's so multi-disciplinarybecause you've got the various
bodies involved and quite oftenthere can be a lot of friction.
The buyer wants the lowestpossible price and the seller
(21:34):
wants the highest possible price, so naturally that friction can
stagnate the process completely.
Now, having gone through thisprocess, if I was a client, if I
was this person right here, ifI'm holding out for 1.5, 2
million pounds because in myhead that's what I've latched
onto, that I need this numberAll of a sudden now you're
(21:55):
saying I only need circa 800,000net of tax.
It removes the frictioncompletely and we can just get
cracking with this sale.
And all of a sudden I can thinkabout later life and retirement
and spending money with the kidsand traveling and and getting
that meaningful, meaningfulamount of life.
And you said as well, on theflip side, if you have too much
(22:15):
money, then then what can you do?
Getting this right is soimportant because, well, quite
obviously, this person has toomuch money and if we know what
our number is, we can beconscious about the tax
consequences, the financialplanning elements such as is it
appropriate to maybe move someshares around pre-exit to try
(22:37):
and get some of that value outof your estate before the exit
happens?
And those sort of mechanismsare so powerful and so important
to get right because it's aone-time only event and once the
exit has happened you can missout on those windows of
opportunities which could impactyou, your life, your kids and
any potential wealth that'spassed on throughout the
(22:57):
generations 100 yeah you know,there's a great question that
someone's actually asked in thechat, which we're gonna come to
uh very soon.
Dr James (23:10):
But I like uh questions that I like and I
think are really fascinating toask to to people like yourselves
who have obviously been on theother side of the table to these
conversations is, in yourexperience and I think we
touched upon this earlier, youknow, but, Luke, you were saying
that it's quite frequently thecase that dentists have a little
(23:31):
bit too much rather than notenough.
And I was just interested, justas a sort of rule, or maybe not
so much a rule, or just in yourexperience, what's the earliest
you've ever seen anybody beable to sell their practice and
have enough to be able to retirein terms of age?
Maybe like mid 40s, 50s,something along those lines.
(23:51):
Because people and the reasonthat I ask this is we all have,
we're all conditioned to thinkthat we have to be a certain age
to be retired, right, likethere's like this subconscious
belief that we have to be 50s or60s or something along those
lines.
But retirement isn't an age somuch as it is an income number
and a level of wealtheffectively.
Luke (24:13):
So to answer the question in terms of the youngest, I mean
, I had a client who exited hisbusiness for a considerable sum
of money in his 30s and hadenough money there to never work
a day again.
But he's set up a dentalpractice recently because for
him it's not, it's a differentdimension, because for him it's
(24:34):
not it's a different dimension.
So, but you know he's done thatby choice, not out of necessity
, because he'd already achievedthat exit with a significant sum
that could have sustained himfor the rest of his life and his
family if he wanted that.
So it's very, very differentfor everybody, but it's powerful
(25:01):
when you've got that level ofclarity of knowing that you've
got enough, very powerful interms of your decision-making
process.
Dr James (25:08):
I think one thing that's very good to know and
I've seen you guys do it on thecash planning side of things
before is you've got a fixed agethat you can tap into your
pension and that's going to bewhat 57 in a few years, and a
lot of people are clinging onfor that age.
But realistically you mighthave a sizable pension.
You've got the exit from thebusiness and potentially some
(25:29):
other savings in an ISA or inyour own name or something along
those lines, and that can tieyou through to the pension as
well.
You don't have to get it all atonce right, but that's the
power of planning, isn't it?
Luke (25:41):
yeah, it's a really good point.
A lot of people latch on tothese numbers, these ages, and
often they're driven by normalpension ages, whether that be
private pension, like you'vementioned, or NHS pension, and,
in fairness, you have peoplethat don't fully understand how
you can access these pensions.
The NHS pension example youknow you don't have to continue
(26:04):
to 60 just to to benefit fromthe nhs pension.
Um.
So, yeah, completely right,it's about really knowing, uh,
what your assets and resourcesare, what your options are, what
flexibility there is, layeringthose up to ensure that you
don't have a shortfall everyyear for in the future, and then
, um organizing things in termsof the, the order in which you
(26:26):
access your, your differentassets and resources, whether
those be savings, investments,as you said, um private pensions
, ie sips, etc.
Uh, it might be nhs pensionsand the timings of those.
Dr James (26:39):
Those events are important, um, obviously, the
key there is to, to, to get, getthat right and not make
mistakes, and then it you knowit's um, they're expensive
decisions yes, and just toreiterate what you were saying
earlier about that particularchap that you were talking about
, who sold their business whenthey were in their 30s and they
(26:59):
have enough to sail off into thesunset should they so wish.
But they're going again withanother dental practice and
that's fine.
You know good on them.
I think sometimes people havethis fear that retirement means
that they just have to donothing.
It's not like that, it's just.
It's more peace of mind.
It's as much a peace of mindthing as anything else to know
that you don't, no matter whathappens, you've got enough.
(27:23):
But like I was saying, like wewere talking about on this
webinar, crunching the numbersis a huge part of that.
Luke (27:29):
Guys, just on that, James, I've got a really good example
of that, I think one of my.
I had a client some time agocome to me and we went through
this exercise and we worked outthat they had enough money as a
household, they were perfectlycomfortable, they had secure
sources of income and they wereon the right, on the right path.
(27:51):
And as part of the visionvision exercise, his, his main
interest and love was flying.
Uh, he was actually he wasn't adentist, actually he was a, he
was a solicitor, um, and he wasable to organize his retirement
as soon as he realized he hadenough money.
And, uh, since then he's beenworking as a flight instructor,
teaching people how to fly, andhe spends his week doing what he
(28:14):
loves, which is his passion.
Um, I think retirement and wewill mention it in due course,
it it's about retirement doesn'tmean that you're, you know, put
out to pasture.
It could be you sell yourbusiness and you go on to the
next project.
It could be that you dedicateyour time to some other cause,
different for everybody.
I've seen lots and lots ofdifferent scenarios on that and
(28:35):
we go through exercises toreally work out what you know
the ideal future is for for aclient, and whether that be work
related or good causes orwhatever it might be leisure,
traveling or a mix, but that onealways stands out to me as
somebody that really embracedthe process and made quite
significant changes to their,you know, to the course of their
(28:58):
life really.
Dr James (29:01):
That's awesome, good to hear.
We are going to throw the micout to the audience very soon so
that anybody on this webinarcan ask any questions they like,
not just about what we'vespoken about, this even but even
in a broader sense anythingfinancial.
All of those questions arewelcome tonight.
Just before we do that, annick,Luke anything that you'd like
to say to wrap up I thinkthere's a couple different
(29:23):
components to this.
Anick (29:24):
So well there.
Think there's a couple ofdifferent components to this?
So well, there's more than acouple.
But from a purely financial,strategic perspective, it's that
adage of failing to plan, planto fail.
Now, getting your ducks in arow, ensuring you're improving
profitability.
(29:44):
It's really easy to get drivenon certain metrics EBITDA, or
whether you should be takingmoney out of the company or
making pension contributions andthe impact of multiples.
The key thing is that we'reevidencing growth over periods
of time.
We're understanding the impactof deal structures.
They can be so complicated.
What works for one person orsomeone you know of might not
(30:06):
work for the other, whetherthat's an asset sale or share
sale, understanding theimplications of earnouts and
deferred payments.
Tax planning, too, is a hugeone within this Business.
Asset disposal relief isessentially a relief on the
capital gains tax.
It's changed quite a bit overthe last few years and there are
(30:28):
plans for it to change movingforward.
So from April 26th that's goingto change to 18%.
I believe Just being organized,getting things in a row, can
can make such a huge financialdifference, as Luke has
demonstrated with the cash flowmodel, can make such a huge
financial difference, as Lukehas demonstrated with the cash
flow model.
By being as optimised as you can, then you can have more money
(30:49):
to do what you want and live thelife you want.
Getting a good team of dentalspecific brokers, solicitors,
financial planners around canadd value, particularly within
the context of what you'reaiming for people who have been
there and done it.
Some of the nitty gritty stufflegal preparation If this is
(31:09):
something you're serious about,engage with a solicitor early on
.
Get the due diligence sortedfinancials, contracts, nhs
information, et cetera, adheringto regulatory compliance.
Make sure all your housekeepingis in order.
And then for me don't get mewrong I absolutely love the
numbers and the financialaspects of it, and Luke touched
(31:32):
on it there.
It's so important to get theemotional and psychological
aspects sorted.
Throughout the process.
There is going to be a rollercoaster of emotions from pride,
fear, loss, excitement, sadnessthat this, this entity you've
built up, your baby, has nowbeen sold and given on to
someone else.
And all of a sudden, you mightnot like how they're driving
(31:55):
Plan ahead for life afterdentistry.
Luke mentioned the flyingexample before, and that's
brilliant.
It's so easy to latch on and sayfrom age 57, I'm going to live
life in the Bahamas sippingcoconuts every day, because
that's what we idealize, orpeople can idealize, as the
perfect retirement.
But what's perfect for youcould be different to someone
(32:17):
else.
So it's really important tohone in on your vision and we do
that a lot because it's yourlife.
It's not a rehearsal.
You only get one shot of it, soyou need to know what a good
retirement looks like for you.
It's really interesting in myclient meetings if I ask a
client what's what do you wantin your retirement?
What's the goal, what's theobjective?
(32:38):
Nine out of ten times people.
It takes a bit more promptingand deeper questions to get
there, which is fine.
It's my role.
If I ask you, what does a badretirement look like?
What's the worst possibleoutcome?
I call that the anti-goal.
People tend to know what thatis and it's really powerful
because once we know what wedon't want, we can start
(33:00):
thinking about what we do wantand what perfect looks like.
Have you had thoughts aboutretirement?
Is this what you want?
Again, people might like theidea of it, but in my experience
, the amounts of business ownersthat have then gone back to
work because it's not actuallywhat they wanted to do.
They saw the, the exit value.
(33:21):
They think they want to stopworking, but they get bored
after a few years and end upbeing an associate and then
equally hate their job becausethey're now working with someone
else.
It can be quite cyclical.
So, like Luke mentioned before,that example of someone who
retired in their 30s and wantsto go again that's absolutely
(33:43):
fine If that's what you want todo.
Have a really deep think aboutwhat you want to do, what you
want to get out of life.
There's been a shift withinsociety of what retirement looks
like.
Talk to people who've beenthere and have done it, fellow
peers, et cetera.
(34:03):
Then the other thing as well alot of you who have practices
when it comes to selling have astrategy in place to talk to
your staff, your patients, forthe transition, because a lot of
your patients have probablydealt with you for however long
Staff employees have had along-standing relationship and
(34:26):
all of their, their world, asthey know it, is changing and
with that comes the element oftiming and sensitivity.
Um, don't overlook theemotional aspects of of what a
retirement and exit looks like,because it is so powerful to get
right and making sure you'redoing the best thing for you
(34:48):
thanks for that and likewonderful stuff.
Dr James (34:49):
Well, guys, thank you so much for sharing your wisdom.
As ever, let's go ahead andthrow the mic out to the
audience.
Just as we were saying a secondago, guys, now is your
opportunity to ask any questionthat you like.
First come, first serve basiswe'll work through all the
questions that are in the chat.
So, looking over at the chatright this minute, first
(35:11):
question from amjad ali shoutout to amjad amjad asks what
size of investment portfoliodoes one need if I would like to
take 80 000 pounds net perannum throughout my retirement
eg 40 years without beingaffected by sequence returns?
Anick (35:32):
sequence returns risk eg combination of sip, isa gia
inequities so that is a questionthat needs calculating and
there's no point trying to pullsomething out of the air for no
reason.
I would say you mentioned aboutimpacting by sequence risk and
(35:53):
it sounds like that's somethingthat worries you a lot.
But then you go on to say aboutthe combination of SIP, icgia
and equities, icgia and equities.
If sequencing risk is really adriver for this worry, then
there's a wider question on thefinancial planning piece.
If you need that £80,000, doesit make sense for the current
(36:16):
asset allocation with how it'sinvested?
Maybe, maybe not?
It's impossible to say withoutknowing all of your
circumstances and situation.
The key thing is withsequencing risk is getting your
asset allocation right, becausewe have no control over capital
markets when a downturn mighthappen and we will never, ever
(36:40):
try to predict when that willhappen either.
Dr James (36:42):
Go on, Anick I thought you finished.
Anick (36:43):
Having a good strategy in place is so important to make
sure you're withstanding thepotential impact and whether
that's holding a bit more cashor making sure the portfolio is
powerful enough to try andrecover from that.
Look at what happened in 2020,the whole list trust situation.
Fixed interest went through thefloor.
(37:03):
Portfolio returns went throughthe floor as well.
Because of that impact of nothaving enough juice within the
equity piece of a lower equityportfolio, quite a lot of
portfolios out there in theuniverse have struggled to
recover from it because ithasn't had enough power to try
and get back from that sequencerisk.
Essentially.
Dr James (37:24):
And you know sequence risk is a really interesting
concept.
Would you be able to explain itin your words for people out
there who don't know what thatis?
Anick (37:36):
So it's essentially day one of retirement.
You're going to take £80,000out in one go.
Let's say If the market'sdropped by 10%, then that
£80,000 is a bigger numberproportionally if you're a total
pot.
So let's say you had a totalpot of a million quid for
argument's sake then thatmillion pounds drops to £900,000
(38:01):
.
All of a sudden, the £,000pounds you're taking out is it's
a it's it's a big proportion ofthe entire pot overall.
Now, when you look at all ofthe data, it's really difficult
then because the portfolio hashad a bit of a beating and then
you're continuing to take onwithdrawals over the long term.
(38:22):
Now, if that's, you get thatwrong.
Portfolios can't really recoverbecause you're taking ongoing
withdrawals and it can be verydetrimental without good
financial planning and cashmanagement and asset allocation
and it can have a detrimentalimpact on future retirements and
those cash flow projectionsLuke showed before.
(38:44):
You can find yourself runningout of money quite easily unless
it's managed adequately.
Dr James (38:50):
Yeah, and just to add to that, the way I heard it
explained once.
Well, it was exactly that.
It's the sequence, the sequenceat which you take out
withdrawals from your account.
Right, you have have to.
The idea is that you wait untilthe market's more buoyant, of
course, because 10, a 10 drop inyour portfolio, well, we'd have
(39:10):
to crunch the numbers, butyou'd have to get a 15 gain to
get back to where you werebefore.
So that's how, the sequence ofwhich you take out withdrawals
from your account.
Well, it can affect how longit's going to last effectively
and whether or not you run outof money, but as, as you say, if
I'm correct, you can somewhatprotect yourself.
Again, it kind of comes back tothe cash flow thing we were
(39:30):
talking about before, becausereally, in an ideal world, we
should have started to cycle outsome of our portfolio away from
equities whenever we're goingto take money out.
So I'm going to say that thecash flow planning side of
things helps against sequencerisk.
Anick (39:44):
Yeah, absolutely.
Cash flow is key and for somepeople, reducing equity content
is one strategy, for others it'smaintaining an adequate amount
of cash.
It just depends on the personalsituation, circumstances.
The key thing is the cash flow.
Now, if someone's taking 80,000out a year for a couple of
years and it drops to 20,000pounds, then the likelihood is
(40:04):
that sequencing risk is notlikely to be detrimental.
It all depends on the thepersonal circumstances, what
that person's financial plan isand what the expenditure pattern
is likely to be in the futureas well yeah, of course, because
if you have income,supplemental income from other
assets, whether in sequencingrisk is, you know whether the
(40:25):
market drops.
You don't need the moneyimmediately if there are
guaranteed sources of income,say pensions, nhs, etc.
That can help protect theinvestment portfolio but listen.
Dr James (40:37):
Great question, because there was a lot to talk
about in there.
Luke (40:41):
Thanks for that, jad just one thing on that.
Can I share my screen again?
Yeah, if I can, again, yeah.
So one of the tools that we usewhich I'm not going to spend a
lot of time talking about butI'm just going to demonstrate
(41:02):
very quickly is a tool thatactually has historic investment
data going back to I believeit's 1915.
And we can tell the tool we usethis to sense, check a
financial plan.
We can tell the system what aclient is aiming to achieve from
their accounts and it willbacktest that using historic
(41:26):
data.
So the example presented in thequestion I think was 40 years,
for example, £80,000 a year.
Is that sustainable or not?
There's so many variables tothat which we can't go into now
the asset mix, targetedinvestment return, risk comfort
and so on and so forth, and tax,clearly.
(41:48):
But as a very quickdemonstration of how we can
really help get people thatpeace of mind of knowing that
they're not going to run out ofmoney, this fictional character,
john Smith, has an ISA with£1.6 million pounds in it and he
wants to draw 80,000 pounds ayear from his ISA for 40 years
(42:11):
until he's 105.
What we can do by clever piecesof technology is we can
backtest that and look at 828scenarios across the last 110
years of history and when welook at that in this example,
89% of the time he would nothave run out of money
(42:32):
effectively.
Now, there's so many variousvariables to that, so please
don't base your retirement onthat.
It's a very crude, simplecalculation alone.
However, this is really useful.
It shows us if you were tostart that journey, that 40-year
journey, at any pointhistorically, what would have
been the outcome the best, theworst and everything in between.
You can see the different startyears here and we can really
(42:56):
stress test using the worst thatmankind has kind of thrown at
us in the last 100 years.
I would say that this portfolioI've used here is 100% in
growth assets.
Again, that's something thatwould need to be assessed, but I
think the question did sayequities.
So just a demonstration, really, as to how you can use
(43:18):
technology to answer some ofthese questions.
Dr James (43:22):
Thank you.
There is, of course, the rathercrude rule of 4%, thank you.
There is, of course, the rathercrude rule of four percent.
Luke (43:25):
Isn't there, but there is and it is crude because of you
know.
You know, factoring in charges,factoring in the different
types of account uh, it was a usstudy.
No, you know, there's all sortsof um caveats to that.
But yes, if you're reading abook, um on the fire movement,
they would tell you to to applythe four percent rule.
(43:47):
Um, but we tend to go a bitmore scientific than that I
think with the four percent rule, bengen.
Anick (43:53):
Actually he came up with it in a time that's not as
relevant today.
There's actually a bit ofresearch more recently done and
four percent actually more likejust over three percent.
I need bigger pots of money, so, but for some people getting a
I wouldn't say ballpark, gettinga rough city worth, it can be
useful, um, but I would not bebasing retirements on off a four
(44:17):
percent rule or three point,whatever percent yeah, and
that's where the cash flow alsocomes in handy, because it's got
the tax and it's got the othersources that will supplement the
capital.
Luke (44:26):
So so you're not just relying on proceeds from
practice.
There might be other streams ofincome that that we need to
factor in.
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