Case Study - Pre-Retiree

Background       

Married couple Tom and Philipa, aged in their mid-fifties, required financial mentoring as they planned for their imminent retirement. They were juggling a significant degree of financial complexity, given they had each been granted voluntary redundancies. Tom and Philipa hoped their payouts and superannuation would be sufficient to sustain an ongoing income stream throughout their retirement. They also wanted guidance around an appropriate strategy for a sea change. Additionally, they wanted to make appropriate provisions to eventually bequeath their wealth and assets to their adult children.

Overview

After several decades working within Government departments, 56-year-old Tom and his wife Philipa, aged 54, happily accepted voluntary redundancies. They had sold their home, located half-an-hour from the CBD, and were relocating to their inner city investment property to renovate it for profit, ahead of making a sea change for their retirement.

When the team at Wealth Fundamentals first met with Tom and Philipa they expressed a feeling of being ill-prepared for the decision-making that lay ahead of them. They each had super held in industry funds, which was in addition to cash they each received from their redundancy packages. Given they could be considered “young retirees”, they feared their assets may not be sufficient to accommodate a coastal relocation and an ongoing income stream for the remainder of their lives.

Our Process

We acknowledged Tom and Philipa’s initial concerns and encouraged them to share their retirement goals. They were avid travellers and wanted access to an income that would allow for annual overseas holidays. They also identified a desire to temporarily relocate to their inner city investment property in order to be onsite whilst renovations were carried out, ahead of selling the property and permanently moving to a coastal address.

Their financial position was complex because of their dual redundancy packages, dual superannuation funds, in addition to the funds from the sale of their long-term home. Tom and Philipa admitted to feeling perplexed by the number of opportunities this liquidity made available to them but they wanted to take a longer-term view regarding their decision-making.

We are accredited SMSF Advisers, and well placed to provide leadership and financial mentoring that included using a series of scenarios to help Tom and Philipa visualise their options for suitable platforms in which to hold their retirement savings. Specifically, we offered insights into the viability of creating an SMSF as opposed to remaining in an industry or retail offering. After reviewing the financial modelling, Tom and Philipa determined a SMSF was indeed their preferred superannuation solution.                    

Tom and Philipa also admitted feeling hesitant about what to do with cash held in their personal names (from their redundancy payments and sale of their former residence). By considering their short, medium and long term goals, we were able to present a range of strategies including repaying the mortgage on the investment property; maintaining a cash reserve to fund the renovation costs; and contributing the surplus cash to superannuation to supplement their long term retirement savings.                                                                                    

Further, Tom and Philipa feared the likely consequences that could result if the sale of their inner city renovation project failed to deliver the funds required to fully fund their coastal relocation. In a strategy designed to help elevate this worry, we guided them through the process of contributing the surplus cash (held in their personal names) into their SMSF as a non-concessional contribution. As Tom and Philipa were then aged over 55, the non-concessional contributions were able to be fully accessed and withdrawn without tax implications.  

Our Wealth Fundamentals holistic approach to Tom and Philipa’s financial position led to discussions relating to their Estate planning. All of their beneficiaries were adult children, so we guided them towards adopting a withdrawal and re-contribution strategy from within their super, designed to create a more tax effective position within that structure. This created an additional short term benefit for Tom and Philipa because they were able to make more non-concessional contributions to their SMSF, creating greater access to capital for the purchase of their coastal home, if required.

With the above strategies in place, the team at Wealth Fundamentals worked with Tom and Philipa to help them determine their desired annual income in retirement. To meet these income needs, we facilitated the commencement of pensions from within the SMSF.

The Outcome So Far                                                    

Tom and Philipa completed the renovations on their inner city property by utilising the allocated cash in their personal names. The pair went on to sell the property but the sale price was insufficient to fully fund their coastal relocation. At this juncture, forward planning came to the fore as they were able to withdraw additional funds from their SMSF without incurring any tax.

The pensions established in their SMSF are providing sufficient cash flow for Tom and Philipa to live their desired lifestyle in retirement. The pensions are also providing sufficient income for them to meet their goal of annual overseas holidays. Tom and Philipa have explored Europe and are about to embark on a South Africian adventure.

Wealth Fundamentals continue to conduct regular reviews of Tom and Philipa’s evolving financial situation and assist with their investment portfolio including risk management strategies designed to help guard against significant market shifts.

In line with Wealth Fundamentals’ holistic approach to financial planning, we also assisted the pair with their Estate planning needs in collaboration with an estate planning specialist, guiding ongoing modifications and helping to facilitate updates where appropriate.

In Tom’s words…

“Before meeting with Wealth Fundamentals, my wife and I worried we may not be able to sustain the type of retirement we dreamed of enjoying. It was a great revelation and relief to discover that, with professional guidance from Wealth Fundamentals, we could achieve our goals.”

“The team offered us a straightforward and diversified approach to investing that helped us to see we could sustain our retirement income over the long-term. We were able to pursue our dream and now here we are living it!”

(*Clients’ names have been changed to protect their privacy)

Matthew Lane is a financial adviser at Wealth Fundamentals. Wealth Fundamentals and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.

The information (including taxation) contained within this document does not consider your personal circumstances and is of a general nature only - unless otherwise stated. You should not act on it without first obtaining professional advice specific to your circumstances.