Harry (49) and Sally (46) are married with two children who are currently in 4th and 6th year in secondary school. Harry is a solicitor who established his own legal firm in 2010. He currently has 6 employees including Sally who works on a part time basis. Sally is happy to increase her hours
They have managed to accrue a solid asset base over the past ten years. In addition, Harry is expecting an inheritance from his parent’s estate in the region of €480,000 once probate is finalised next year. They are both currently in good health and have no adverse medical family history.
Harry is concerned that his family’s wellbeing is dependent on his ability to drive the profitability of the firm. He particularly want to know if they have enough to maintain their current lifestyle in the event either of them dying suddenly or being unable to work through sickness and disability.
We have outlined their summary balance sheet and income versus expenditure below.
The blue above denotes positive cash flow whilst the red is negative. The black line in the chart above denotes cost of living and any blue above the black line indicates surplus income. Based on the client’s current position, and assuming Harry retires at age 60, they will run out of liquid cash when Harry reaches age 84. We note that that current expenditures exceed current income.
As Harry is self-employed, all of his net relevant earnings after expenses are subject to income tax. To improve tax efficiencies, he may want to consider at a minimum increasing Sally’s remuneration to avail of the full standard income tax band which can be duly financed by a reduction in his own relevant earnings which are taxed at the higher marginal rate.
The following charts illustrates Harry and Sally’s current position in the event of either of them dying or being unable to work:
We have outlined their summary balance sheet and income versus expenditure below.
