close relative of mine has reached retirement age and she needs help with her finances. The situation is not great:

  • A settlement left her with a modest pot that must last her the rest of her life.
  • She now handles her own financial affairs after decades of delegating that trust.
  • While she can shish-kebab a bargain at 20 paces and haggle like a souk trader, she has no experience of the complex financial decisions she now faces. Tripwires are everywhere.
  • She’s terrified of the stock market and sits mostly in cash. Like most people, she can’t equate inflation’s slowly corrosive impact with her eventual ruin.
  • Tentative consultations with financial advisors have taught her enough to be wary.
  • She’s scrambled by a fad-hungry media that treats investing like fashion. The constant switchback of advice leaves her prey to so-called ‘experts’ who offer to make sense of it all.

The reality is she has run out of track. The pot struggles to generate enough income in a low-interest rate world. Inflation is eroding it, but equities are too risky: there’s no crumple zone to absorb a stock market crash.

Spending less is the only emergency lever left to pull (and it’s not like the ambition level was particularly grand to start with). It’s too late to work longer or save more.

DIY investors can help retiring relatives

What a mess

As the holes in the safety net widen and more people are increasingly being left to fend for themselves, DIY investors like us will need to fill in the gaps.

It’s an unnerving responsibility. My own retirement is many years away, so plenty of the details can be left to ferment in a tank marked ‘the distant future’.

But in this role, precision guidance is needed. My relative’s problems need definite answers but, as it turns out, a caring amateur can do a better job than a careless professional…

As I excavated the stack of valuation statements, brochures, and key feature documents, I uncovered a haphazard clutch of active funds and insurance bonds full of stuff that my relative would never have chosen for herself.

It turns out she is 20% in equities. Plus every shade of corporate bond right down to junk, distressed companies, futures, and the same high-yielding UK blue chips in fund after fund – HSBC, BP, Glaxo, Vodafone, Royal Dutch Shell, BAT, and so on.

The usual suspects staff the top 10 holdings in no less than eight of her funds! That’s more redundancy than in the Greek civil service.

The incoherence of it all makes me angry. There’s no strategy, no sense of an architect who has carefully designed an investment machine that operates in all weathers, while taking into account the needs and abilities of its owner.

It’s just a Katamari ball of a portfolio that has rolled around picking up whatever sounds good and pays juicy commission to previous advisers.

Meanwhile the key feature documents all play the same soothing marketing lullaby:

Achieve a sustainable level of income combined with the prospect of long-term capital growth.

Beautifully chosen words that press the retiree’s happy buttons while amounting to absolutely naff all.

The brochure risk indicators offer further reassurance with middling scores that tell you nothing about the risks of putting eight near-identical funds in the same portfolio! Like state propaganda, it’s so much window-dressing that provides cover for misdeeds.

You could blame it all on my relative for not having the nous or desire to rigorously research and question all that they have been told.

Or you could imagine yourself next time you’re handed a bill for the repair of your car. Squinting at the list of meaningless charges and hoping that the reason you can’t see any cowboy hats is because you don’t know any cowboys.

So what to do…?

The primary goal of the strategy I’m working on for my relative is to meet her minimum spending needs while removing as much risk from the equation as possible.

The impact of inflation, stock market volatility, tax, the state pension and a long-lived retirement all need to be taken into account.

The product costs need to be dramatically reduced and the advisors who are still siphoning off commission must be unhooked. I’ll need to be wary of any exit charges here.

Annuitisation is looking inevitable, but a rump of the portfolio will remain to cover the unforeseen.

I want to keep this rump simple so my relative can understand what each component part is for. Hopefully this will provide some kind of defence against future temptations to mess. Maintenance needs to be a doddle, too.

Fancy stuff like desired spending needs and legacies can be dreamt about once we’ve secured the minimum spending floor.

I’ll report back once I’ve firmed up the strategy. In the meantime please do let me know in the comments below about your experiences in this realm – either securing your own retirement or the retirement of someone close to you.

I’d be fascinated to learn what others have done in this situation.

Take it steady,

The Accumulator

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