A Yield Client Case Study 
Re-contribution tax savings for kids – up to $90,542
Assessed several property scenarios and recommended optimum downsize value
Reduction in life insurance in line with need
Bucket company investment strategy: Est $97,500 more at retirement
Re-contribution tax savings for kids – up to $90,542
Assessed several property scenarios and recommended optimum downsize value
Reduction in life insurance in line with need
Bucket company investment strategy: Est $97,500 more at retirement
Securing Your Retirement as a Business Owner
Financial planning for business owners is about optimising the business finances with the business owner’s personal financial plan. This is done by optimising cash flow and tax structures, with a suitable wealth creation and wealth protection plan. With over a third of our clients being business owners, our team of advisors are well versed in providing tailored advice to the needs of business owners, considerate of their business needs and personal financial plan, which is evident within the following case study.
Robert and Jennifer are a couple who own their own business and were referred by their Accountant for retirement planning. Their business is quite niche and while they are at full capacity now, they felt there was scope to wind back the work they took on, so they could make a staggered transition to retirement over time. They asked us to take a flexible outlook on the number of years they should continue working, considerate of their broader objectives. Robert & Jennifer advised that due to the creative nature of the business and dependency on Robert to deliver projects, that there was no saleable business value.
They were interested to purchase an additional property and assess their superannuation accounts, insurance cover, and loan repayments. Their main objective was to purchase a costal property and wanted to understand the financial impact of doing so on their retirement plan.
With our client’s consent, this case study showcases the advantages of engaging a financial advisor for business owners.
Identifying the Needs of Business Owner Clients
To support Robert and Jennifer in achieving their financial aspirations our role as a financial advisor for business owners involved, leading thoughtful discussions about their values and what they were trying to achieve; what their current plan for achieving a successful transition to retirement was, including business succession considerations; and provided educational insights, and thoughtful challenges. Through this process of prioritisation, we discerned the specific areas our expert advice would be most beneficial.
Considerate of the current financial landscape, we agreed to evaluate their financial plan for retirement, including purchasing a coastal property. In addition to this, they had been underwhelmed by their current super fund for many years and were seeking proactive investment management for their super, along with personal advice to grow it effectively.
In terms of their personal security net, they had insurance which they were concerned they were overpaying for and had already cancelled cover, though conceded they did not really understand what their current need was. As part of our financial planning advice, we carefully examined their insurance needs, assessing existing policies against the current market, thus determining an appropriate level of coverage for both Robert and Jennifer.
Property Advice Strategies and Observations
During our detailed analysis, we found that Robert and Jennifer were on track to achieve their goal of purchasing a coastal holiday house by FY2028. To reach this conclusion, we modelled different financial scenarios, considering various property options. In our initial discussions they told us that they were prepared to downsize their family home in Melbourne but did not know what they could afford to spend, considerate of their retirement income objectives and coastal property goal.
Through discussion we identified what they felt they needed to spend to get the coastal property they wanted and what they felt they were comfortable to downsize to in today’s market. This included them doing some homework on sold properties, to get some connection to what value translated into in today’s market, which they did. Considerate of this, we suggested that they downsize their current home and use the released funds to buy the holiday house and a smaller residence in Melbourne.
After assessing their situation, we determined that they could afford both properties for a total of $800,000 in today’s dollars by 2028. However, we identified that this decision will impact their ability to cover retirement income needs. To sustain their lifestyle in the long term, they may need to sell one of the properties by FY2046 to fund their ongoing expenses. Our guidance aims to strike a balance between their ideal lifestyle and financial security, with the understanding that future adjustments might be necessary.
As their trusted advisors, we are dedicated to helping Robert and Jennifer make well-informed choices on this transformative journey to retirement.
Superannuation Advice & Strategies
We have recommended that Robert and Jennifer consider utilising the Downsizer Contribution rule following the sale of their home. Under this plan, they would each contribute $300,000 to their super accounts, with $165,530 coming from the sale proceeds of their primary residence and the remaining $134,470 withdrawn from other sources. This strategy we implemented as a financial advisor for business owners would allow them to put more funds into super than regular rules would permit, providing a tax-effective environment with lower tax rates. Eventually, the contributions would become income and capital gains tax-free, aligning well with their retirement income needs. Moreover, this contribution would also reduce the taxable balance of their super account, increasing the tax-free portion, providing potential tax benefits for non-tax dependents if they pass away.
We have also suggested that they consider undertaking a further re-contribution strategy involving withdrawing the full balance of their super accounts and recontributing the funds equally back into their accounts. This approach could potentially save up to $90,542 in taxes for their non-tax dependents.
To optimise their retirement savings, we recommended that Robert and Jennifer consider maximising concessional contributions to their super while working at full capacity, contributing directly to their super fund. This approach could save them up to an estimated 19% on taxes compared to receiving the funds as part of their salary. As they begin scaling back from work, we proposed that they think about making a $1,000 non-concessional contribution to their super, potentially resulting in $500 of government co-contribution benefits each financial year, providing further support for their retirement savings and financial security.
Investment Advice
As part of our comprehensive financial planning for business owner clients, we proposed utilising the existing cash surplus held in their company, which exceeded their desired cash buffer of $100,000. This surplus amount could be wisely invested in a well-diversified portfolio of managed investments. By doing so, they would have the opportunity to potentially maximise returns on their funds while managing risk effectively.
In addition to this, we advised that they consider investing all surplus cash above the desired company cash buffer on an annual basis, provided the company remains in a net profitable position. This strategic approach to deploying surplus funds into investments, could yield substantial benefits over time, significantly enhancing the balance of their financial assets, and resulting in a surplus of over $97,500 at the time of their retirement compared to if they were to hold these funds in cash throughout the projected period.
In addition to investing the surplus funds, we identified further improvements, by strategically withdrawing income from the company after retirement, when their tax rates were lower. These investment strategies aim to optimise their financial position, bolstering their long-term financial security and ensuring a more comfortable retirement.
Another key piece of advice related to a commercial property they own, that currently has debt and was untenanted. We identified that their current plan was to sell this property and in fact already had it on the market. The property was held in a family trust and following the sale, we proposed withdrawing the remaining balance and transferring it to their personal accounts. Consequently, we advised the closure of the family trust, simplifying their financial affairs and reducing unnecessary complexities, which the accountant agreed was sensible.
Insurance Advice
Jennifer & Robert were concerned they had more cover than they needed and were ready to cancel everything they had for the cost. Based on our thorough pre-assessment of the clients’ medical history, we advised them to maintain their existing insurance cover due to its favourable terms, which included no exclusions or loadings. To enhance their financial protection against insurable events, we proposed specific amendments. Donna’s life cover was reduced by approximately $1.2m to align with the level of trauma cover, set at $187,611, while Marcus’ life cover was similarly adjusted to match the recommended level of coverage, totalling $655,000. A reduction of approximately $1.1m. These modifications ensure comprehensive coverage tailored to their unique needs, safeguarding their financial well-being and providing peace of mind, while also freeing up cashflow for retirement opportunities.
Centrelink & Seniors Entitlements
Given the clients’ age, we advised Robert and Jennifer to apply for the senior’s card, enabling them to access a range of valuable benefits and concessions tailored to seniors. Furthermore, as they approach pension age and cease drawing funds from their company, we recommended that they also apply for the commonwealth seniors’ health card, which would offer enhanced healthcare coverage and reduced medical expenses.
Considering their plans to acquire a holiday house in addition to a new primary residence, it’s crucial to consider the impact on their eligibility for age pension payments. Since the value of the holiday house would be assessable, immediate age pension payments may not be feasible. However, we strategically recommended that they apply for the age pension as soon as they become eligible to receive it, allowing them to take advantage of available government support and entitlements at the appropriate time.
By pursuing these prudent courses of action, our clients can maximise their benefits and safeguard their financial well-being, ensuring a comfortable and secure retirement. The careful consideration of their age, lifestyle choices, and eligibility for various entitlements forms an integral part of our comprehensive financial planning strategy, aimed at providing them with peace of mind and financial freedom in their golden years.
Benefits of Our Advice
Our comprehensive financial planning advice has achieved numerous benefits for our business-owner clients, taking into consideration their unique needs and circumstances as business owners. By recommending a re-contribution strategy involving withdrawing and re-contributing the full balance of their super accounts, we secured substantial potential tax savings of up to an impressive $90,542 for their children, a significant advantage for business owners looking to maximise their wealth transfer.
Additionally, our clients stand to gain from our careful assessment of various property scenarios, which led to the identification of the optimum downsize value, allowing them to make prudent decisions regarding their property investments while balancing their business commitments. Furthermore, we strategically reduced their life insurance coverage in line with their specific needs, ensuring they have adequate yet cost-effective protection.
Our astute bucket company investment strategy, geared towards the needs of business owners, is projected to yield approximately $97,500 more at the time of their retirement, fortifying their financial security. This tailored approach considers the potential fluctuations and uncertainties that entrepreneurs may face in their business journey, offering them a solid foundation to achieve both personal and business financial objectives.
We also helped them understand the time frame they will need to work to achieve their objectives, considerate of reduced hours over time, to support a transition to retirement they are happy with, that also helps them prioritise and balance this with their broader objectives.
Overall, our financial advice has been crafted to complement the entrepreneurial spirit of our clients, providing them with customised solutions that support their business endeavours while securing their long-term financial success and enabling a secure retirement. These results exemplify the positive impacts that come as a result of engaging with a financial advisor for business owners, that demonstrates commitment to empowering business owner clients with a comprehensive and forward-thinking financial strategy tailored to their unique circumstances and aspirations.
Yield Financial Planning is Here to Help
With the expertise of Yield, financial planning for business owners can prove to be invaluable. We understand that as a business owner, your financial goals and challenges may differ significantly from those of other individuals. That’s why we offer personalised financial planning services tailored to meet your specific needs and aspirations.
Our team of experts will work closely with you to develop a comprehensive plan that aligns with your business and personal objectives. Whether you need assistance in retirement planning, risk management, or wealth preservation, Yield Financial Planning is here to guide you every step of the way. Contact us today to explore the many benefits of engaging with a financial advisor for business owners.
