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Widow Seeking Advice for Sustaining Retirement Needs

Services Used – Wealth Creation, Retirement Planning, & SMSF.

A Yield Client Case Study
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Achieved retirement income of $60,000 p.a (indexed)

Recommended recontribution strategy – Up to $28,807 tax savings for estate

Identified eligibility for Age Pension by 73

Modelled various income scenarios including spending more now, and less after age 80 to provide for freedom

Introduction

When a life partner passes away, it is destabilising both emotionally and financially and makes financial planning for widows a vitally important step for the future. Harnessing the support of a financial planner at this time, will help you re-evaluate your life and choices to ensure your finances are aligned with your values and the important things and people in your life that you love. Through the financial planning process, you will develop a structured plan that fits with your risk comfort and promotes a sense of security.

To illustrate this, one of our long-term clients Lynn, lost her husband John to cancer. Lynn was 66 at the time. Before John’s diagnosis, they had been enjoying their retirement. Their lives were full with family friends and in particular spending time with their 7 grandchildren which they saw regularly. Around these commitments they valued regular travel, however their world changed dramatically when they received John’s diagnosis, and after only a short 12 months, John unfortunately passed away. This blog has been produced with agreement from our client to illustrate the value of financial planning for widows.

 

Overview 

When seeking our advice, Lynn expressed that the longevity of her financial assets was the most integral priority for her, while affording certain things that were important to her. With this in mind, we agreed to analyse her financial position to determine whether she would have sufficient financial assets to be able to sustain her retirement needs. Additionally, we also set out to assess Lynns eligibility for Centrelink benefits in the future.

Our initial analysis revealed that on a retirement income of $60,000 p.a., the balance of Lynns financial assets were expected to supplement her income needs until she reached the age of 90 – at which point Lynns financial assets were anticipated to be exhausted.

On discussing this with Lynn, she identified that she would like to explore flexibility to spend more now on lump sum expenses that were important to her like travel, and we modelled an additional scenario that allowed Lynn to spend $50,000 on an overseas trip in the near future. In this scenario she was able to maintain her inflation adjusted income of $60,000 until age 80, but would then need to reduce her living expenses to $55,000 in today’s equivalent at the age of 80. Lynn was interested to explore this, given she will likely slow down and become less active by the age 80, and therefore spending needs are expected to lower.

 

financial planning for widows

Superannuation Advice

As we were already Lynn’s financial planner we had previously recommended that John’s super pension, was set up with a reversionary pension to Lynn. This meant that when Lynn became widowed, John’s super pension, was immediately reverted to Lynn. This removed the stress of changing ownership of John’s super to Lynn and ensured continuity of income.

One important piece of advice we provided Lynn, was to implement a recontribution strategy. This strategy consisted of withdrawing $330,000 from her pension account and recontributing these funds back to her superannuation account. In doing so, it has restructured Lynns retirement savings with the objective of decreasing the tax that may be payable in the future by any non-tax dependant beneficiaries such as children, in the event of her death. Undertaking this strategy resulted in an estimated tax savings of up to $28,807 for her estate.

In addition to this, Lynn takes her investment advice from Yield, using a managed discretionary account service (MDA). This provides a proactive investment solution that suits Lynn, as it’s simple for her and allows us the flexibility to execute effective investment decisions in a timely way.

 

Centrelink & Seniors Entitlements

To supplement Lynns retirement income, we advised that she applied to Centrelink to receive the Age Pension, when eligible. According to our analysis, it was estimated that Lynn would be able to receive this payment by the time she reaches 73 in FY2029, for a projected sum $72.73 per fortnight ($872.80 p.a.).

As Lynn progresses throughout retirement and continues to drawdown on her assets, the balance of assessable assets for Centrelink purposes will decrease which will progressively increase the payments that she will receive from the Age pension up to the full pension amount.

Proactive advice on Centrelink entitlement is one way we contribute value to Lynns life and make it simpler. Not only have we identified when we expect she may be eligible, but in future we will monitor her eligibility considerate of the rules of the day. Furthermore, we will assist Lynn to apply for her age pension entitlement when the time comes and then will become an appointed representative to assist with keeping Centrelink updated on Lynn’s position, which is a requirement of receiving Age Pension. This financial planning advice for widows is highly valuable as it provides peace of mind and security.

 

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 the following reductions:

  • Reduce drawdown from $72,000 p.a. to $62,000 p.a. in FY2034 (age 78).
  • Reduce drawdown from $62,000 p.a. to $52,000 p.a. in FY2036 (age 80).

Financial planning for widows

Estate Planning

Estate planning is an integral consideration of financial planning for widows, to ensure that the assets and possessions are passed onto Lynn’s loved ones, in accordance with her current wishes. One important part of this was for Lynn to update her Will which we advised.

We also recommended that Lynn ensure her Powers of Attorney are also up to date. This is a vital consideration, as it requires identifying someone you trust, to look after your financial affairs and medical treatment, in the case that you lose the capacity to do so yourself. For Lynn this is her children. This is a difficult conversation that often gets put to the back burner but is especially important for a widow. For Lynn we made an introduction to estate lawyers which simplified the process for her.

 

Benefits of our Advice

Lynn and her late husband have been long-term clients of Yield Financial Planning and we are humbled to have fostered this long-term trust. Financial planning is not static or one-off. It is often a lifelong partnership, and this has allowed us to provide objective financial advice and guidance, even at this most vulnerable time.

As a result of our financial plan for Lynn, she can now rest easy that she can afford her desired lifestyle and understands the trade offs that may come from different life choices. As well as knowing she has the ability to afford a retirement expenditure of $60,000 p.a. indexed, whilst saving up to $28,807 in tax for the benefit of her estate, she understands when and how Age Pension will support her position.

Experiencing a life altering event such as the loss of a partner, can often be difficult enough without the added pressure of managing the shift in finances. Financial advice for widows is delicate, but through a re-evaluation of what is important to you and how to move forward financially, we take pride in our ability to assist you in feeling secure. We’d like to extend our gratitude to Lynn for being such a lovely client of ours and agreeing for us to share her experience, and we’re glad to have been able to assist in improving her retirement prospects.

Please contact us if this resonates or if you would like to speak about your own financial situation.

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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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