Financial Planning for a Widow: $60K Income
Background: Meet Lynn
Lynn, a long-term client of Yield, faced a significant life transition at the age of 66 when her husband, John, passed away after a brief but intense 12-month battle with cancer. The couple had been enjoying a fulfilling retirement, their days were rich with family, especially their seven grandchildren, and frequent travel adventures.
John’s passing was not only emotionally devastating for Lynn but also brought uncertainty about her financial future. With her lifestyle now changed, Lynn reached out to Yield for guidance on how to manage her finances moving forward, with a key focus on maintaining financial security while preserving her lifestyle and values.
Key Results at a Glance
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Retirement Income:Achieved retirement income of $60,000 p.a (indexed)
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Estate Tax:Saved $28,807 in estate tax via recontribution strategy
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Age Pension:Identified eligibility for Age Pension by 73
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Travel Goal:Enabled a $50,000 lump sum for travel early in retirement.
Why Did She Seek Advice?
- Assess the sustainability of Lynn’s retirement income needs following John’s passing.
- Understand how long her current financial assets would support an income of $60,000 per annum.
- Evaluate the financial impact of discretionary spending, including a $50,000 overseas trip Lynn was considering in the near future.
- Explore eligibility for Centrelink benefits to supplement future income.
- Ensure her financial arrangements aligned with her new lifestyle, risk tolerance, and long-term independence as a widow.
- Gain peace of mind through structured financial planning for widows, tailored to her unique goals, values, and stage of life.
Strategies Implemented
Although we had a long-standing relationship with Lynn, we approached this new chapter in Lynn’s life with a fresh perspective. We revisited her financial goals, lifestyle priorities, and overall financial structure to ensure our strategy reflected her new circumstances, risk comfort, and income needs of $60,000 per annum.
Given the shift from a joint retirement plan to planning for Lynn as a widow, we assessed the sustainability of her current income level and modelled various scenarios, including one that accounted for a $50,000 overseas trip. We also considered how her spending needs might change over time, especially as she moves into her later retirement years.
Superannuation Advice:
- John’s superannuation pension had been set up with a reversionary nomination to Lynn, based on prior advice from Yield. This meant that upon his passing, the pension automatically reverted to Lynn, avoiding the need for ownership changes and ensuring a seamless continuation of income.
- We advised to implement a recontribution strategy by withdrawing $330,000 from her pension account and recontributing it back into her superannuation as a non-concessional contribution.
- This strategy aimed to reduce the taxable component of her super balance, which could lower the tax payable by non-tax dependant beneficiaries, such as her adult children, upon her passing.
- The estimated tax saving from this strategy for Lynn’s estate was up to $28,807.
- Lynn continues to use Yield’s Managed Discretionary Account (MDA) service for her investments, providing a proactive, flexible investment approach that allows timely decisions to be made on her behalf.
- The MDA structure simplifies the investment process for Lynn, aligning with her desire for a straightforward, low-stress solution that supports her long-term financial objectives.
Centrelink & Seniors Entitlements:
- We advised Lynn to apply for the Age Pension to supplement her retirement income once she becomes eligible.
- Our analysis estimated Lynn would be eligible to receive Age Pension payments by the time she turns 73 in the 2029 financial year.
- The projected payment at that time is approximately $72.73 per fortnight, or $872.80 per annum.
- As Lynn continues to draw down on her assets during retirement, her assessable assets for Centrelink purposes will decrease.
- This reduction in assessable assets will progressively increase her Age Pension payments, potentially up to the full pension amount.
- We provide proactive advice on Centrelink entitlements to add value and simplify Lynn’s financial planning.
- We will continue to monitor her eligibility in accordance with current rules and assist her with the Age Pension application when the time comes.
- We will act as Lynn’s appointed representative to help keep Centrelink updated on her financial position, a requirement for ongoing Age Pension receipt.
- This ongoing financial planning support for widows offers Lynn peace of mind and security throughout her retirement
Cash Flow Management:
- In addition to reducing her expenditure at age 80 to $55,000 p.a.to extend the longevity of her financial assets, we also advised Lynn to assess her net savings/deficit position over time.
- By doing so, she could reduce the payments from her pension account to avoid excessively drawing down on the account when it’s not necessary.
- Per our analysis, we recommended that Lynn reduce her drawdowns by $10,000 in each financial year that her net cash savings were expected to be above this amount.
- We recommended reducing the drawdown from $72,000 p.a. to $62,000 p.a. in FY2034 (age 78), and then to $52,000 p.a. in FY2036 (age 80).
Estate Planning Advice:
- We advised Lynn to update her Will to reflect her current intentions.
- We also recommended that Lynn review and update her Powers of Attorney.
- Powers of Attorney are essential for appointing someone trusted to manage financial affairs and medical decisions if Lynn loses capacity.
- For Lynn, her children are appointed as her Powers of Attorney.
- We acknowledged that discussing Powers of Attorney can be difficult and often delayed, but it is especially important for widows.
- To make the process easier, we introduced Lynn to estate lawyers who assisted her with the necessary legal updates.
Outcomes and Benefits
- Developed a sustainable retirement income plan allowing Lynn to maintain $60,000 per annum (indexed) while preserving her financial assets.
- Enabled Lynn to make a $50,000 lump sum expenditure on travel without jeopardising her long-term financial security.
- Implemented a superannuation recontribution strategy saving an estimated $28,807 in potential tax for her estate.
- Structured Lynn’s finances to optimize eligibility for Centrelink Age Pension, projected to begin at age 73, supplementing her income.
- Introduced cash flow management recommendations to reduce unnecessary pension drawdowns, extending asset longevity.
- Provided ongoing proactive financial advice and support, including management of investments via a Managed Discretionary Account.
Key Takeaway
Losing a life partner is one of life’s hardest moments, and managing your finances during this time can feel overwhelming. That’s why having someone you trust to support and guide you is so important. Whether you’re facing financial decisions for the first time, dealing with emotionally challenging choices, or simply trying to figure out what comes next, the right support can make all the difference
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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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