$1.5M Debt to Debt-Free Retirement
Background: Meet Samantha & Dylan
Dylan and Samantha, a couple in their late 50s and early 60s, had worked hard to build a solid financial base made up of direct property investments and a portfolio of shares. In recent years, they had sold two of their investment properties and purchased a new family home, but this also left them carrying $1.5 million in debt at a time when they were nearing retirement.
Alongside preparing for their own retirement, a major priority for the couple was ensuring long-term support for their autistic daughter, including the possibility of purchasing a property she could rent at a discounted rate. They wanted confidence that they could transition into retirement debt-free, support their daughter sustainably, and maintain their desired lifestyle without compromising financial security.
Key Results at a Glance
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Tax Savings:Est. $15,733 tax saving when property sold, using ‘catch up’ concessional super contribution
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Super:Spouse contributions provided 18% return on contribution
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Debt Free:$1.5M debt fully cleared before retirement
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Support for their child:Ability to purchase property worth $450,000+ for their autistic child
Why Did They Seek Advice?
- Understand whether they were on track to retire comfortably on at least $85,000 per year.
- Assess whether purchasing another investment property for their daughter to rent at a discounted rate was financially viable.
- Review the sale of two properties to achieve a more tax-effective and strategically aligned retirement plan.
- Develop a plan to clear their remaining $1.5m in debt before retirement.
- Receive tailored advice on how to structure their assets for long-term sustainability, estate planning, and financial security throughout retirement.
Strategies Implemented
Property Advice:
- Modelled scenarios for selling one or both investment properties to improve cash flow, reduce debt, and ease future financial pressure.
- Identified that a significant portion of their wealth was locked in direct property, meaning the sale of their Camberwell and Tasmanian properties would ultimately need to occur to free up capital and improve liquidity
- Recommended selling the Camberwell property, as the proceeds would be sufficient to clear all remaining debt, fund the purchase of a property for their daughter, and allow additional contributions to superannuation.
- Recommended deferring the sale of the Tasmanian property until Samantha is fully retired, enabling her to use the catch-up concessional contribution rules and significantly reduce tax payable on the sale by an estimated $15,733.
- As they are wanting to purchase a property for their daughter, we offered the alternative strategy of leasing the Canterbury house to their daughter in the long term. This strategy was proposed in order to avoid the costs of sale.
Retirement Advice:
- Reviewed their projected retirement income and identified the risk of running out of money under their current plan.
- Determined that Dylan and Samantha could retire immediately if they wished, with a projected retirement income of at least $85,000 per annum.
Property Sell-down Advice:
- A sell-down strategy was devised for their property portfolio, considering factors such as capital gains tax implications, rental income, maintenance requirements, deductibility, and simplification of their trusts to reduce accounting costs.
- Retained an apartment block of 8 units in line with Charles and Brenda’s preference to generate ongoing rental income during retirement, supporting their long-term cash flow needs.
Superannuation Advice:
- Recommended Dylan and Samantha make non-concessional contributions to superannuation.
- Projected that Samantha could receive a $540 tax offset each year for eligible contributions to Dylan’s super, representing an 18% return on contributions.
- Advised Dylan, being retired and over 60, to consolidate surplus funds into super immediately through a non-concessional contribution.
Outcomes and Benefits
- Sale of Camberwell property cleared $1.5M of debt, improving cash flow and reducing financial stress.
- Enabled purchase of a property worth $450,000+ for their autistic child while maintaining their retirement lifestyle.
- Achieved a sustainable retirement income of $85,000 per annum.
- Non-concessional contributions could generate an 18% return via $540 annual tax offsets.
- Retained Tasmanian property until optimal timing, maximising superannuation and reducing immediate tax impact.
Key Takeaway
This story highlights that even when getting your finances on track feels overwhelming or impossible, seeking tailored advice at the right time can help you achieve your goals and sometimes even better than expected.
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Important Note
Produced with our client’s permission. Names within this case study have been changed to protect the client’s right to privacy. The content of this case study has been based on a real-life client. Any information provided here is general advice only and does not consider your objectives, financial situation or needs. This information should not be taken as comprehensive and does not constitute legal or financial advice. You should seek legal, financial or other professional advice before relying on any content. Yield Financial Planning is not responsible to you or anyone else for any loss suffered in connection with the use of this information. Information is only current at the date initially published.
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