Baby boomers are born consumers and love choice. For those unsure, a baby boomer is generally defined as those born just after World War II – 1946 to 1964. During these years, the number of babies born in most western nations, including Australia, was staggering. Today, around 20% of Australia’s population is made up of baby boomers. If you’re at the tail end, then you’re currently 55 years old and 10 years away from retirement. If this is you, have you put your retirement plan in place?
What’s it about?
We look at baby boomers David and Sarah’s journey of how they took control of their financial future. From uncertainty and indecision to having a rock-solid financial plan that will provide them with a secure and comfortable income stream when they retire. They want to know how to use their surplus income to build up a resource to fund their future expenditure. They’ve decided to take control of building wealth in preparation for retirement in their mid 60’s.
Meet David and Sarah, both aged 55, married, and have 2 independent adult children. David is a qualified Chef and Sarah’s background is in occupational therapy, but she is no longer in the industry. They manage their own profitable catering business that provides an annual profit of around $75,000, which is retained in the business. They earn collectively $180,000 per annum from their catering business, run as a private company. They have no debts and have $90,000 in their joint bank account. David has $375,000 in superannuation and Sarah’s superannuation account has $155,000, held in balanced funds.
They needed a plan and they needed it now. They could do it themselves (which could be hit-and-miss) but instead, chose to do it with our help.
A framework of values
Before a financial plan is even considered, you need to know what you want to achieve. A financial plan captures your goals and objectives and sets out your priorities, but it must also be dynamic to reflect personal changes as well as market changes.
What is it that you want? Peace of mind, happiness, great relationships, looking after the family, minimising tax, a secure and comfortable retirement income or a 10% return on your investments. Once you know what’s important to you, then you can build a plan around it.
Solving the puzzle
A financial plan is like a completed puzzle. It’s a written document which summarises where you are now, where you want to be in the future, and how you will get there.
If you don’t have a plan, you may only have part of the puzzle, or worse, have the wrong puzzle piece. This was exactly where David and Sarah were.
The first step was setting their goals and objectives. We sat down and identified their goals, questions, fears and concerns. For David and Sarah, it came down to health, income security, looking after the family, and balance.
The second step was identifying their priorities. Where a plan can’t meet all their goals, this identified where efforts needed to be directed.
The third step was identifying their current position. Here, we identified their assets and liabilities.
The fourth step was working out a budget and their capacity to save. It’s an important step because it can help control any potential increases in future expenses to allow increases in their savings capacity.
The fifth step determined the level of ‘risk’ they were comfortable with. Risk is the chance that an investment will not meet your expectations. When a risk profile is established, this helps determine the appropriate asset classes to invest in.
Step number six was to decide on the asset allocation for investments. This specifies the percentage of their portfolio that is allocated to each investment class. Asset allocation is the break-up of how to intend to invest your money and is expressed as a percentage of the investment portfolio. For example, an aggressive risk profile will have 85% allocated to growth assets like shares and property.
The seventh step was to select the actual investments, whether to invest directly or through managed funds and who will own the investments.
The eighth step was developing the strategy and putting it in writing in the form of a Financial Plan (Statement of Advice).
Step nine is the implementation stage where the plan was put into action.
The last and final step is monitoring and reviewing the strategies. Monitoring the progress of the plan at least annually will ensure budget figures are being met, investment values are updated and checking if anything requires special attention.
Putting it all together
After going through the ten steps, David and Sarah’s strategies included establishing a salary sacrifice arrangement, liquid funds held in a high-interest bearing account to meet short-term and emergencies, surplus funds invested outside superannuation with income reinvested to take advantage of compounding.
Also, a Self-Managed Superannuation Fund was established for both of them and their two adult children, with an emphasis on growth assets to help boost their balances over the next ten years. Their preference for control, choice and flexibility made an SMSF the appropriate structure for their circumstances.
David and Sarah can now spend more time with their children and grandchildren, instead of worrying about whether they will have enough money to fund their retirement years.
Never too late to start the process
Regardless of what stage of life you’re in, it’s never too late. Make the decision today to plan and live well and start building wealth for yourself and your family.
We’re in the middle of an unprecedented situation and no one knows how long this can take and what’s going to happen next.
If you’re contemplating retiring soon and wondering whether it’s still a good idea, contact us on 07 5559 5760 and based on your circumstances, we can advise you whether it’s good for you to go ahead and retire or whether it might make sense to delay your retirement for a year or two.
Whatever path you choose, we want to wish you the best as you set off to plan for your future. Book a chat with the Centaur Financial team to step through what you should be doing next.
As always, if you would like to discuss the contents of this newsletter please give us a call 07 5559 5760.