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Client Stories

 1. Living well in retirement

Profile:
Bruce: age 65, Nell: age 55.

Financial Situation:
Income: Bruce retired 2 months ago. He is government age pension age (Nell is not yet) though not receiving any benefits. They currently live off their savings held in a bank account.
Assets: They own their own home (approx value $520,000) and have a car, caravan, and house contents with a combined value of $80,000. They also have a term deposit of $60,000 and $40,000 in their savings account. Bruce has $565,000 in his superannuation.
Loans: nil.

Objectives:
To qualify for a health care card.
$380-400 income per week after tax (approx $20,000pa).

Nell will be age pension age in 10 years and while Bruce is at the right age now, he is not currently eligible because their assets are over the Centrelink tests. However, at the least, they’d like to qualify for a healthcare card which would be a significant benefit to them as Bruce’s health has not always been the best. On good advice, they set up a superannuation fund for Nell and contributed $450,000 of Bruce’s super savings here, thereby deferring it’s accountability through Centrelink’s tests until Nell reaches age pension age.

With their cash, they kept aside $40,000 for holidays and to have something readily available on hand. They contributed the rest into term deposits with different maturity dates so as to get the high rate but also not lock it away for too long. They then converted Bruce’s super to a pension account, taking an income of $10,000 per annum.

Bruce also became eligible not only for the healthcare card, but also a small pension of $477 per fortnight (or $12,400pa), meaning they are drawing down less savings which would therefore last them longer through their retirement.  In total, they now receive an tax free income of $22,400 pa, around $430 per week.

Bruce and Nell have appointments each year to see their Financial Planner to make sure their investments are still going well and also implement any changes to make sure they stay on track.

Bruce and Nell are living happily in retirement and are planning a trip to Tasmania next year to visit their family.

2. Pre retirement

Profile:
Charles: aged 55, Ada: aged 50

Financial Situation:
Income: Charles earns $60,000pa, Ada has already retired.
Assets: They own their own home valued at $475,000.
Loans: They have less than $2,000 in personal debts.

Objectives:
Charles wishes to retire in 10 years, they estimate they will need $40,000 pa net to live off. On retirement they plan to take a trip around Australia (budget: $20,000).

Charles and Ada felt they needed a financial health check to ensure they were on track to meet their retirement goals. Considering the expected growth rate of Charles’ and Ada’s conservative super funds and Charles’ contributions, plus their retirement goals and the national estimated life expectancy, while Charles and Ada will be able to enjoy their holiday and start receiving an income when Charles retires, their savings were predicted to run out by the time they were aged 75 and 70, respectively. Charles and Ada don’t want to sell their house as they plan to give it their children as an inheritance but they also don’t want to be a burden on anyone either.

Charles and Ada attended a few financial planning seminars and learnt that with their investment timeframe of 10 years until retirement and another 25+ years beyond that, they could afford to be a little more aggressive in their investment approach. And so Charles moved to a “Balanced” investment strategy and Ada to a “Growth” strategy to give them more access to growth assets such as shares and property.

Charles also saw a financial planner who gave him some advice and recommended that he set up a special type of super / pension account that would allow him to salary sacrifice a larger portion of his pre-tax dollars into super and supplement this with a small tax effective income so that they still had the same amount in their bank each fortnight. This was an entirely new concept for Charles and so their planner walked them through some examples and emailed extra information for them to read at home.

Their planner also helped them to look at a better budget in retirement and explained that while when they initially retire their expenses might be high, as they get older, it is likely that they will spend less and so they can make their savings stretch further by adjusting their budget with this in mind.

Charles and Ada are expected to now not have any shortfall for their retirement and they both feel much more in control. They still review their plans every year, and are well and truly on track.

3. Starting with the right tools

Profile:
Carlos: aged 37, single

Financial Situation:
About to open the doors to his own cafe on the Gold Coast, will employ 5 staff members initially and increase as the business expands.
Income: Carlos has no other income apart from this business.
Assets: Carlos sold all his shares to fund the part purchase of the shop.  He owns his own home valued at $310,000.
Loans: he funded the remainder of the purchase with a $150,000 mortgage he took out against his house.

Objectives:
To run a good business and develop, become an integral member of the local community.
He intends to operate this business for the next 20 years if it does well.

Carlos knows good service and makes a mean eggs benedict, but when it comes to finances, he’s a little bit lost. On looking at Carlos’ situation we first noticed a few red flags.

» He will need to structure his business and finances in order to ensure he can build a good business.
» Carlos has a lot riding on this business and also on him personally to be able to operate it.
» Carlos has staff that he will need to accommodate for.
» This business is Carlos’ nest egg which will serve him in his retirement seeing as he intends to be self employed for the remainder of his working life.

The first thing we did was to refer Carlos on to a good Accountant and Business Solicitor who gave Carlos some excellent advice and support to set up the structure of the business.

Next, seeing as the viability of Carlos’ business and his ability to meet his loan repayments depends on his health and prosperity, we investigated a good insurance policy that caters to the self employed and small business owners, and tailored an insurance plan that could meet Carlos’ budget. We also ensured that if he was unable to work because of his health, than enough funds would be available so that Carlos could hire a business manager to run things for up to 6 months while he recovered plus would give him personally an income supplement to ensure he could continue to pay his personal bills and his loan outside of the business during this time.

As Carlos will also have staff, we set up for him an easy to manage business superannuation account so that if employees chose to, they could invest their super payments from the business into the account with each super account tailored to the risk appetite of each employee.

Also to ensure Carlos’ happiness in retirement, we also gave him a superannuation account and worked in conjunction with his accountant to set up a tax effective plan to make contributions and decided on a tailored investment strategy within to ensure he can gradually get back into the share market while also creating an extra nest egg for his retirement.

4. The real value of insurance

Profile:
Michael: aged 41, married 2 children (3 and 5)

Financial Situation:
Income: Employed as a building supervisor earning $75,000 per annum.
Assets: Home valued at $450,000, Superannuation of $42,000.
Loans: Home loan of $277,000 paying $2,660 per month.

Objectives:
Michael suffered a heart attack at work and received a Trauma insurance payout of $398,000.
Main objective to cut back at work and reduce stress.

With Michael’s insurance payout, he paid off his home loan, and used a deposit of $100,000 and the equity in his home to purchase two investment properties valued at $350,000 each. The properties generated $36,400 per annum in rent with a negatively geared interest only loan costing $42,000 per annum.

He left his former job and joined a smaller company closer to home, earning less at $55,000 per annum, but working less hours and with a great deal less stress. He also started salary sacrificing $10,000 per annum into his superannuation.

The result:

Pre Heart Attack Post Heart Attack
Salary $75,000 Salary $55,000
Salary Sacrifice ($10,000)
Rent for investment properties $36,400
Investment loan repayments ($42,000)
Taxable income $75,000 Taxable income $39,400
Tax paid ($16,350) Tax paid ($5,670)
Net income $58,650
Home load repayments ($31,920)
Net income after tax and loan $26,730 Net income after salary
sacrifice, tax and loan $33,730

Michael spends more time with his family, and also has more money in his pocket each year. Plus he is well on his way to an early retirement with over a substantial property portfolio and his superannuation growing at a compounded rate of return. Thanks to the freedom his insurance provided him, he has turned around his life and is determined to never again let his work come ahead of his health and his family.

5. Ambition

Profile:
Marcello and Lyn, both aged 29, no children.

Financial Situation:
Income: Marcello earns $85,000 per year as a Sales Manager for a pharmaceutical company and Lyn is a marketing consultant earning $65,000 per annum.
Assets: No significant assets at present.
Loans: Minimal personal loan and credit card debts valued at $2,500.

Objectives:
Both growth investors and have a keen interest in investing.
Would like to plan for an early retirement at aged 45 though also have some lifestyle goals to meet which include travel and investing.

Marcello and Lyn are not thinking about their retirement. For the past few years, they’ve been enjoying their inner city life. They figured, they have the rest of their lives to think about retirement. However a mutual friend Julie has been putting money away in her savings for the past 7 years and while she’s only been investing a small amount, just $200 a month, her savings are now sitting at over $25,000. Lyn attended a seminar put on by Julie’s Financial Planner and was stunned to hear that even if her and Marcello started the very same savings plan today, Julie’s investment would have $168,500 more in 20 years time purely due to the fact that she’d have started 7 years earlier than Lyn would have.

It’s really made Lyn stop and think and they’re now thinking more seriously about the future. Putting in the effort now, makes your goals later that much easier to achieve. They certainly don’t want to be working forever and so are now thinking about their long term future and have set their sights on achieving an early retirement. In addition to this, Marcello and Lyn are planning to start a family in the next 2 years and would like to buy their own home. They’re also now looking for more work life balance and are thinking of moving into a more family friendly neighbourhood.

Marcello and Lyn did their research and took some professional advice to come up with a short term and long term plan.

In the short term, they moved from their inner city apartment into bigger home in the suburbs while also saving $100 per week in rent. They also changed their lifestyle and now entertain more at home. With a little discipline, they set up a regular savings plan of $1,000 per month. $500 will go into a conservative investment fund meaning it will be more stable and will become their deposit for a house in a few years time. And the other $500 will go into a higher growth internally geared fund. The gearing meant that effectively for each $500 they invested, they would be getting $1,000 per month of exposure to growth assets which would really kick start their savings. When they have a family, they plan to stop the regular deposits but the savings nest egg will keep growing without needing much attention.

Marcello and Lyn are well on their way to a much more secure financial future, but most importantly, they have a good plan in place and are now well informed about how to stay in control of their future.

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