We recently had the opportunity to meet with Bob and Carol, who came to see us to explore what their situation would look like if they were to sell their home and move into an independent living unit in a local retirement village.
Photo by Jens Lelie on Unsplash
They really felt they were in a position where they had no choices in relation to their finances, and even though they were happy living where they were, they were prepared to sell up in order to meet their cash flow needs. Whilst the couple lead a frugal lifestyle, Carol has been in need of medical treatment and associated medication for some time, and the cost of this has depleted their reserves as it is quite expensive and most of it is not covered by government support. They had essentially run out of money and were unable to meet their costs of living. In particular, this was going to cause them a great deal of trouble into the future because, of course, they wanted to maintain Carol’s health.
What they had decided they needed to do was to sell the house and move into an independent living situation in a retirement village and this really was something they did not want to do. They were feeling quite helpless when I first met them, and quite despondent about the decision that they felt was being forced upon them. We undertook to do some modelling in relation to their financial situation to show them exactly what the disposal of their home and the investment of the surplus which they expected to generate would mean for their future cash flows.
In the end, we were able to give them a number of alternatives to simply disposing of their home, in short, we were able to provide them with choice.
The first scenario we modelled was of course the one that they had approached us to discuss i.e. the disposal of the home and the purchase of an independent living unit in a retirement village, generating a surplus and then investing those funds in order to generate income which would enable them to then have the cash flow necessary to meet their necessary costs of living.
The second option we explored in our modelling was the possibility of disposal of the home, investment of the full amount of the proceeds and renting an alternative home in the normal community for an expected amount of rent.
The third possibility which we explored was the possibility of remaining in their own home and entry into a reverse mortgage arrangement which would enable them to use the security of the home which they already owned to fund a borrowing which they could draw down on progressively to supplement the cash flow which they were receiving from the Aged Pension.
No matter how we looked at the situation it appeared to us that if they were comfortable with borrowing funds in this way they were going to be financially better off over the long term and indeed any legacy which they wanted to leave for their family was going to be larger.
Regardless of which course of action we take, the most important part of the assignment was showing the clients that they, in fact, did have choices, that they did not have to sell their home unless they wanted to, and that there were alternatives available which could provide them with some flexibility. It was exactly this kind of freedom of choice, this relief from feeling that they had to do something, that was the most valuable to these clients.
The relief which they expressed in the room when we presented our findings to them was quite moving. This was one of those moments in financial advice where we get the best reward for what we do every day. The clients thanked me profusely for the work that we had done and expressed a view that we had not only achieved what they had approached us to do but that we’d given them the peace of mind they needed to be able to move forward without the level of stress that they had been experiencing.
As a financial adviser the rewards you get from having done your best work on behalf of a client in providing an outcome with which they are comfortable – not just comfortable but relieved and grateful for the experience, cannot be matched. It is this kind of interaction which gets us out of bed every day.